Here’s What Else Could Go Wrong With Apple’s Upcoming Earnings

Apple shocked investors earlier this month by warning that its results in the holiday quarter would fall far short of its prior forecast.

On Tuesday, the iPhone maker will reveal the details behind its shortfall when it reports its full quarterly earnings. Analysts are girding for further disappointments.

In November, Apple had said sales for the quarter would be $ 89 billion to $ 93 billion, which, at that level, was already worrisome to investors. But because of weaker-than-expected sales in China and some broader problems with iPhone sales, revenue ended up at only $ 84 billion.

The news sent Apple’s shares plunging 10% on the day of the warning, but the price has since recovered almost all of the loss. At Monday’s closing at $ 156.30, the shares were off 1% from just before the New Year’s surprise.

The recovery still leaves Apple’s shares down 33% since they hit an all-time high in early October, as investors remain worried about whether iPhone demand will grow again.

Since Apple’s warning, the world’s economy hasn’t improved, and the U.S. partial government shutdown didn’t help matters. “So far, we have not seen any signs of meaningful improvement in the underlying demand environment in China,” Goldman Sachs analyst Rod Hall writes.

In another sign of continuing weakness, Apple has been cutting prices in some countries and offering generous trade-in allowances in others, such as the United States. The trade-in promotions “feel more aggressive than usual,” he noted.

Apple (aapl) is making several changes this quarter in how it discloses its results. The company will no longer report how many iPhones it sold, only the total revenue from iPhone sales. And it will begin reporting its profit margin on its faster-growing services business, which includes everything from iCloud storage fees to Apple’s 30% cut of all iOS app sales. Analysts say the profit margin could be anywhere from 60% to 65%, but if it comes in higher than most expect, it could give Apple’s stock price a boost.

“The new services disclosure will be far more important than already understood weak iPhone numbers,” writes UBS analyst Timothy Arcuri. The information, if positive, could “stabilize and expand” Apple’s stock market valuation, he adds.

But Logan Purk, at Edward Jones, sees little chance that investors overall will change their opinions about Apple’s struggles just based on the services results. “Despite continued strength in products and services outside of the iPhone and despite Apple’s push to change the narrative to focus more on these other businesses, the stock remains tied to overall iPhone results,” he noted.

One area analysts are watching for further disappointment is Apple’s guidance for sales in the current quarter, which runs through the end of March. On average, Wall Street analysts currently expect $ 59 billion of revenue, including $ 33 billion from iPhone sales, but some are growing more cautious.

“The December quarter dictates the strength of iPhone cycles and the iPhone business typically follows a fairly predictable seasonal pattern,” Toni Sacconaghi, at Bernstein Research, wrote.

The current analyst estimate for iPhone sales implies a 37% decline from the year-end quarter to the March quarter, versus an average drop of 36% over the same period in the prior three years. But Sacconaghi warns that this year seems particularly weak for the iPhone. “We see this as a meaningful outstanding downside risk,” he wrote.