Apple Q1 preview: Record iPhone sales on deck; all eyes on China, enterprise

Apple is slated to announce record iPhone sales on Tuesday after the closing bell. But its underling businesses, notably enterprise and its China business, deserves attention.

Apple Pay is now part of the company's services unit -- for a good reason (Image: CNET)

Don't be surprised if Apple finally reached its smartphone sweet-spot.

Apple's fiscal first quarter earnings are just around the corner. The company is expected to report record sales after the lucrative December holiday quarter. As expected, the iPhone is expected to reap in record profits.

Wall Street is expecting the company to report earnings of $2.59 per share on revenue of $67.5 billion -- well above the company's own fourth-quarter expectations of $67.5 billion in revenue at the high range.

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Breaking that down, more than half of the company's revenue is expected to be iPhone. Estimates peg Apple to have made 66.5 million iPhone sales during its fiscal first-quarter, ending in the last few days of December. That's up by about 30 percent year-over-year, or around 15.5 million iPhones.

The company has ridden the iPhone gravy train for almost every quarter its been out on the market. But the massive spike in sales from the year-ago quarter can likely be attributed to the recent release of the iPhone tag-team of the larger 4.7-inch iPhone 6, and the 5.5-inch iPhone 6 Plus. This is the first quarter in which the company has announced its smartphone sales during the full three-month reporting period.

Apple has played the long-game, while many of its competitors -- Samsung, notably -- has jumped on board the "phablet" movement. Now Apple's made a pitch for the larger device consumer, sales for the already-lucrative quarter are expected to rocket.

That's probably not such a bad thing, as the company is expected to sell about 21.5 million iPads during the quarter -- a decline of about 17 percent year-over-year.

On the Mac front, the company reported a surprise bump in sales of the desktop and notebook line-up last quarter. Apple sold 5.5 million Macs during the quarter, up more than 20 percent. All eyes on this quarter to see if Apple can repeat its performance, where about 5.6 million Macs are expected to have been sold.

But, despite the pomp and fanfare that the iPhone comes with, it's not the be-all and end-all. Here's what you need to keep an eye on.

iTunes, Apple Pay is growing in size

The company's own-brand mobile payments solution, Apple Pay, is one to watch this time around.

Nobody is entirely sure how Apple Pay makes money. It's said that Apple charges banks for each transaction made by the user. The user is not charged for using their iPhone to pay for products or services on the go. With hundreds of banks and even more pay-points set up, expect a significant spike in this unit.

Apple is not expected to break out any figures for Apple Pay specifically, but chief executive Tim Cook and chief financial officer Luca Maestri may highlight the service on the company's follow-up earnings call. We'll have more when it lands.

China remains a crucial key to Apple's profit-driving machine

On Saturday, Apple opened its twentieth retail store in Hangzhou, a prominent city in eastern China.

It comes not long after the company, known for its secrecy, is said to have opened up its software to the Chinese government's information security department in effort to appease concerned critics of Western spying and espionage.

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Don't be surprised. Apple needs to keep on China's good side -- the one remaining place in the world that the company has struggled to compete in, and gain access to.

Apple already has good stead in China, with about 12 percent market share. It's building up retail stores, presence, and has attacked the smartphone market by working with the three major Chinese carriers. If it can maintain this momentum, particularly as the Asian markets prefer the larger smartphone, the company could see a huge growth spurt in the region.

Apple-IBM: Anything new to share?

Remember those declining iPad figures? Apple may have a plan to get these up to scratch again.

This is the first quarter Apple will have reported the rewards from its deal with IBM. To recap, Apple and IBM have begun to roll out more than 100 exclusive industry-specific apps for iPhones and iPads. The deal links IBM's big data and analytics services with Apple's business customers. It's a win-win for both.

It's not clear exactly what will be announced (if anything) on the revenue front, expect at least a mention in Apple's follow-up call, about an hour after the earnings release.

Apple stock was up half-a-percent on Friday's market close at $112.98.

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