(Reuters) – Apple Inc.'s ( AAPL.O ) several hundred billion cash reserves and a stagnant growth in services such as iCloud offer an opportunity and a concern that some investors hope they will have in the business Quarterly earnings report will be addressed on Tuesday.
The iPhone is by far Apple's largest product, which accounted for more than 60 percent of its sales last year, but Chief Executive Tim Cook and other executives have seen services as a path to growth ,
Disappointing forecasts from the iPhone supply chain have lowered sales expectations.
Analysts like Bernstein's Toni Sacconaghi estimate that only 51 million mobile phones were sold in the second quarter, compared to Wall Street (54 million handsets) compared to 50.7 million the year before. Overall, Wall Street lowered its expectations for iPhone sales from $ 39.7 billion on April 17 to $ 39.2 billion, an average of 17 Thomson Reuters analysts.
Sacconaghi expects the iPhone business to dominate discussions over the results, but some investors think it's a better question of whether Apple can implement its plan to increase revenue from Apple Music, iCloud and the App Store increase.
"When people asked what Apple's next big product was, we kept saying it was service for several years, but then it stagnated in the last quarter – Apple is like a student with a bad record We're not going to throw them out yet, but we'd like that number to go down, "said Trip Miller, Managing Partner at Gullane Capital Partners.
Miller, an Apple investor, wants Apple to use some of its liquidity to encourage share buybacks and reinvest some in the services business. In February, Apple announced that the segment grew 18 percent to $ 8.4 billion. Analysts' expectations of $ 8.6 billion remained behind the $ 8.5 billion in the previous quarter.
According to a Thomson Reuters average of 17 analyst estimates, Wall Street expects sales of $ 8.4 billion for the quarter.
Tom Plumb, founder of Wisconsin Capital Management and Apple shareholder, said Apple should seek recurring revenue in areas such as financial services. Apple could use the money to bolster its Apple Pay product by buying a company like American Express Co ( AXP.N ) or making other investments to get consistent returns on transactions.
"You are seeing the ripening process of this technology cycle, I'm afraid their mentality is," Oh, we need another big product and a cycle of opportunities like this, "Plumb said." But what they really need is a recurring revenue model to participate in all these changes around the world. "
Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said that many of the massive acquisition targets were often thrown as opportunities for Apple, such as Netflix Inc ( NFLX.O ) or Tesla Inc. ( TSLA.O ), makes no sense from a valuation point of view, because Apple has a premium relative to its own price-earnings ratio He noted:
His request: an increase in the Apple dividend similar to those of other tech firms such as Intel Corp ( INTC.O ) or Cisc o Systems Inc ( CSCO.O ).
Reporting by Stephen Nellis; Arrangement by Greg Mitchell, Peter Henderson and Susan Thomas