Apple's Weak iPhone Sales an Ominous Sign for Earnings

Several reports are pointing to a weaker-than-expected quarter for Apple’s iPhone sales ahead of the tech giant's earnings, raising further worries for the company's stock that already is down sharply in just a few weeks.

iPhone 4S
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iPhone 4S

“This needs to be a quarter where Apple excels overseas, particularly in China,” said Colin Gillis, senior technology analyst at BGC Financial on CNBC’s “Squawk on the Street.” “If [Apple] doesn’t smash numbers, the stock is going to go down,” added Gillis. “The fast money has moved into this name, so if there’s any hiccup, it’s going to trade off.”

In its quarterly earnings report Tuesday, AT&T , the largest seller of Apple’s coveted handset, announced it activated 4.3 million iPhones in the first quarter, a sharp decline from 7.6 millionin the fourth quarter. While fewer iPhone sales translate to weaker subscriber growth for AT&T, it did help the company's profit margin.

AT&T’s announcement comes a few days after rival Verizon posted its quarterly earnings. Like AT&T, Verizon also reported a drop in iPhone activationto 3.2 million iPhones from 4.2 million in the prior quarter.

Adding to a string of bad news for Apple, Microsoft and Nokia recently announced a new joint venture called AppCampus, devoting $12 million each to help fund developers at a university in Finland to build apps for the Windows Phone and other Nokia platforms.

“Longer term for Apple, you have to be aware of the fact that the carriers are really backing this Microsoft/Nokia platform because they want to get phones at a lower average price,” explained Gillis.

Meanwhile, Jefferies said it now expects iPhones sales of between 28 million to 30 million in the fiscal second quarter following the AT&T announcement, compared to a previous estimate of 32 million. The current consensus is 30.49 million units, according to an estimate from StreetAccount.

Wall Street analysts expect earnings of $10.04 a share on revenue of $36.8 billion, according to a consensus estimate from Thomson Reuters. Analysts also project the company to have sold 30 million iPhones in the quarter.

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Apple stock was trading lower for the 10th day in 11 trading session, breaking well below its 50-day moving average of $570 a share.

Meanwhile, some optimistic analysts noted that even if Apple misses its domestic iPhone sales figures for the quarter, the launch of the new iPad and iPhone 4S sales in China will still buoy the company.

"While we believe the U.S. and western Europe will be sequentially down due to tough compares, the upside will be driven by international expansion especially in China where demand was 'off the charts' as reported by the company on its last [earnings] call," wrote Mizuho Securities in its research note.

In addition, some analysts also said the iPhone 5 launch, expected later this year, will bring further upside to the company.

“By the time iPhone 5 launches, we expect almost 175 million subscribers globally out a total mobile phone subscriber base of less than 5 billion,” wrote Jefferies. “If we assume a two-year upgrade cycle and a two percent churn, we believe Apple is set to sell almost 90 million iPhones in fiscal 2013 just as an upgrade.”

Jefferies also said Apple has potential to take market share gains against Android and Research In Motion .

Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

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