Apple Earnings Preview: Forget the iPhone -- Let's Talk iPad

All eyes will be on Apple (NAS: AAPL) Tuesday after the close, as the Mac maker steps up to the earnings plate to report its fiscal third-quarter results. Most investors are homing in on iPhone estimates as usual, but I'm actually more interested in the iPad figures that will be unleashed.

Let's talk iPhone
That's not to say the iPhone figures aren't as important. On the contrary, the market's focus on that business is rightly placed, as it remains the largest contributor to sales. Analysts have toned down iPhone unit estimates in recent weeks, as they expectedly drop off with the sixth-generation model looming on the horizon.

Unit sales are expected to be in the 28 million to 29 million range, a sequential slowdown relative to the 35.1 million sold last quarter. We already know that 2.7 million are in the bag, thanks to carrier partner Verizon's (NYS: VZ) earnings release last week. Fellow domestic carriers AT&T (NYS: T) and Sprint Nextel (NYS: S) haven't put up their iDigits yet, but the domestic portion of iPhone sales has been on steady decline as international sales continue to march higher.

Sources: Earnings press releases and conference calls. Calendar quarters shown.

Sources: Earnings press releases and conference calls. Calendar quarters shown.

This chart shows domestic iPhone sales relative to total iPhone sales over the past several years, including when Verizon and Sprint were added to the carrier mix along with longtime carrier AT&T.

Looking at international iPhone sales, China's three largest carriers -- China Mobile, China Unicom, and China Telecom -- all just released their June subscriber figures, with 3G penetration hitting a new high of nearly 17% as 3G subscribers more than doubled over the past year to 175.6 million.

Topeka Capital's Brian White thinks Apple will be a "major beneficiary" to this acceleration in 3G adoption. White also notes that China Mobile's share of 3G subscribers continues to fall as its smaller rivals both now officially carry the iPhone. By my calculations, China Mobile still leads with 38.2% of the 3G subscriber market, down from 43.5% a year ago.

Conservative iPhone estimates set Apple up for another beat, especially as two iPhone suppliers, Qualcomm and Skyworks Solutions, recently reported earnings and triggered an iPhone supplier rally.

Let's talk iPad
Although the iPhone figures will have more of an overall impact on the top and bottom lines, I think the iPad figures will be more interesting for a number of reasons.

Apple has tossed typical sales seasonality out the door, as new iPad launches in the spring pick up the slack at a time when iPhone sales slowdown in anticipation of the new models. The iPhone and iPad now tag-team as the primary growth drivers, and summer is the time for the iPad to shine.

There is limited historical data on the device since it's relatively young, but the same quarter a year ago after the iPad 2 launch saw unit sales nearly triple from 3.27 million to 9.25 million. I'm not expecting iPad units to triple this quarter, but doubling to around 18 million is certainly with reach. In fact, estimates go as high as 20 million units, although there's a wide range of analysts' best guesses.

Google's (NAS: GOOG) Nexus 7 was launched after the quarter closed, so any effect that device may or may not have had won't be shown in the results.

The main reason I'm so interested in the iPad results is to see how much it contributes to sales. It's now pitched in about 20% of trailing-12-month sales, compared with the iPhone's 50%, so I'll be watching how quickly the iPad figure can rise as it's the fastest growing Apple product in the company's history. As a younger business, watching it now will have longer-term implications for the product's viability as a growth driver for years to come.

Source: Earnings press releases.

Source: Earnings press releases.

We Fools like to focus on the long term, which is why I'm less concerned with how iPhone sales come in this single quarter and am much more interested in how quickly the overall iPad business can take off in its formative years.

Let's talk dollars
The Street is expecting top line revenue of $37.25 billion, translating into earnings per share of $10.31. Analysts frequently update their estimates heading into results, so remember that this is a moving target. Those consensus figures would represent sales growth of 30% and earnings-per-share growth of 32%. While both of those growth figures are lower than Apple's five-year averages, this can be expected considering how large the company has grown.

Besides, Apple has a habit of putting Street analyst estimates to shame.

There's a good chance that Apple will report an iPad blowout, which is why it plenty of room to run. The Motley Fool has just launched a brand-new premium Apple research service catering specifically to current or prospective Apple investors. Sign up today!

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Fool contributorEvan Niuowns shares of Apple, Verizon Communications, and AT&T, but he holds no other position in any company mentioned. Check out hisholdingsand a short bio. The Motley Fool owns shares of Apple, Qualcomm, China Mobile, and Google.Motley Fool newsletter serviceshave recommended buying shares of Apple and Google and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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