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Apple’s return to blockbuster numbers: Wait for the next quarter

The iPad Mini is shown in San Jose, Calif., Tuesday, Oct. 23, 2012.

Marcio Jose Sanchez/AP

Apple Inc. may have to post one more underwhelming quarter before it returns to blockbuster numbers.

The iPhone-maker reports its fiscal fourth-quarter results on Thursday after market close. On the surface, everything is running smoothly at the world's most valuable technology company, as sales of the brand new iPhone 5 continue to smash records. In addition, the company this week announced an upgrade to its iPad and several of its desktop computer models, as well as a smaller-sized tablet aimed at the lower-end of the market.

But much of that success has taken place too recently to end up in Apple's earnings report on Thursday. The company will only have a few days of iPhone 5 sales to offset somewhat sluggish sales of its previous iPhone models – in a common phenomenon, sales of existing phones and tablets tend to decline when consumers know an upgraded version of the same product will soon hit stores.

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That phenomenon was a big reason why Apple, in a rarity, failed to meet lofty expectations in its last quarterly earnings report. The company has also been somewhat conservative in its guidance, compared to analyst estimates. Apple expects revenue of $34-billion (U.S.) and diluted earnings per share of about $7.65, compared to analyst averages of about $36-billion and $8.83 a share.

Apple's share price has risen only slightly in the past three months, even as the company announced myriad new products. Even though many investors are already looking ahead to the next earnings announcement, at which point Apple will have locked in a huge portion of its iPhone 5 sales, many will be looking for details Thursday on how Apple is approaching its biggest threat – lower-cost devices from competitors.

"As the market for smart phones passes the 50-per-cent penetration in developed markets such as the United States, the next stage of smart phone growth could be more focused on mid-to-lower priced offerings," wrote Colin Gillis, senior technology analyst at BGC Financial. "Apple may find it difficult to maintain margin while growing massive scale, particularly as the overall market for smart phones slows."

There are many signs that Apple is taking the threat of lower-cost devices very seriously. The iPad Mini, announced this week, is a clear attempt at targeting the lower end of the market with a tablet that costs significantly less than the full-size iPad. Apple has also gotten in the habit of lowering prices on previous versions of its devices whenever it announces new ones, effectively turning the older phones and tablet models into lower-end options for price-conscious consumers.

Nonetheless, competition is quickly heating up in the mobile sector. Google Inc., Apple's chief rival in the smartphone race, recently released a 7-inch tablet of its own, and is expected to launch a 10-inch version in the future. Microsoft officially launches its Windows 8 operating system this week, and with it a brand new tablet running on the software. The increased competition, as well as fears that some of Apple's newer products could cannibalize other devices in its arsenal, could cause investors to worry tomorrow if Apple posts another sub-par quarter.

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