Analysts expect earnings of $10.12 a share on revenue of $42.6 billion, which sounds great for almost any company on the planet but Apple, it seems. Apple’s own guidance was a rather more modest $9.23 to $10.23 per share on earnings of $41 to $43 billion.

The question is whether those results — or better — will push Apple’s brutalized stock up … or down.

I talked to Pace University’s Darren Hayes about Apple, technology, and the stock market. Hayes is a professor at Pace’s Seidenberg School of Computer Science and Information Systems.

VentureBeat: What has driven Apple stock down over the past six months?

Hayes: iPhone 5 sales have failed to impress. There’s been a lack of innovation over the past few years to come up with the next great device, and consumers have failed to see any differentiation. Samsung has captured the market.

VentureBeat: Isn’t the stock undervalued?

Hayes: It’s possible. The short sellers have had a field day, but once the stock starts to rebound, they’ll have to cover.

With the amount of short selling that has been going on, it has been oversold. So with any kind of bump, the short sellers will have to cover, and there’s likely to be some rebound.

Short sellers are happy when the stock is going down … they may even increase their short position. But if there’s a couple of days of increase, short sellers may need to cash in on their profits and buy it back, so instead of it moving $2 it may move $12.

VentureBeat: So if Apple reports good news, the stock could jump significantly?

Hayes: It’s possible it could bump up $50 or $75.

VentureBeat: What does Apple need to do to make that happen?

Hayes: The company needs to look at business alliances. We’ve all heard about BlackBerry’s difficulties maintaining market share. Apple has failed to grasp that opportunity … failed to capture a tremendous business opportunity.

For example, even with servers — Apple had tremendous servers, but never looked to expand their market. They need to talk more about how they’re going expand their reach in corporate markets.

Google and Android have had a very effective strategy — it’s easy for developers to develop for Android, it’s open source, integrated in the auto industry, into appliances — and its adoption rate is far great than Apple’s.

In terms of of security, Apple does have better security, but businesses are going with the cheaper option.

VentureBeat: What is Apple’s biggest challenge?

Hayes: Apple has the market share in terms of tablets and they’ve been able to compete in computers, but what people are really interested in is the smartphone market. Smartphones are the most important thing people are looking at right now. For example, look at HP and Dell — it’s clear people are buying smart devices and not investing in traditional computers.

There’s about one billion smartphones in use, and that’s likely to double by 2014 according to Gartner.

The problem is that the iPhone has really failed to impress – demand has been very soft for iPhone 5.

VentureBeat: What about a cheaper iPhone?

Hayes: That’s definitely a good move, but what’s really important is the incentives they offer to carriers. Apple has already incensed a lot of carriers by offering very, very small incentives, so many carriers feel they’ve been squeezed by Apple and now would rather promote Samsung and Android.

So it’s not just about improved features and better pricing … it’s about carriers.

VentureBeat: Can Apple ever get back to $700 stock price territory?

Hayes: They need to get more hype about their products. And they need to think about the next big device that would really create some interest and buzz. Apple TV is probably not it … there’s not many details about it — they need to come out with something new.

We’ve been spoiled for years by Steve Jobs unveiling some new device year after year.

Image credit: Marco aka MenfiS/Flickr

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

If T-Mobile’s announcements this week didn’t blow your mind, you probably weren’t paying enough attention.

T-Mobile’s pitch is that being the friendly, open “uncarrier” will help it become the Shangri-la of mobile networks: Consumers will be so spoiled, happy, and carefree that they’ll never want to leave T-Mobile’s loving arms — even if doing so is really easy. “Why sign up for an abusive two-year contract with AT&T when you can get almost the same deal with your Benevolent Uncarrier?” this coddling T-Mobile asks.

But let’s be specific. Here’s what T-Mobile is pushing:

• When consumers buy a phone via T-Mobile, they can either pay it off all at once or in an installment plan. The subsidy is dead.
• T-Mobile has also killed the contract, and it has replaced it with simple, clear plans that actually make sense.
• T-Mobile is rolling out its LTE network, which is supplemented by its extant speedy HSPA+ network.
• It’s also selling phones that people actually want — the HTC One, Galaxy S IV, and, of course, the iPhone

This all sounds too good to be true. LTE? No contracts? The iPhone? How can the in-distant-fourth-place T-Mobile possibly pull all of this off and still manage to stay afloat?

T-Mobile’s struggle for relevancy

As it turns out, T-Mobile really has no choice but to do all of this.

Right now, the network’s most pressing problem is its subscriber base, which shrunk by over a million people last year. Lots of these people left because T-Mobile didn’t carry the iPhone, but others left because T-Mobile’s aging 4G network was showing its age in comparison to the faster LTE networks of AT&T and Verizon. (Also — did I mention the iPhone?)

Still too good to be true.

The network factor here can’t be ignored, as it’s probably the biggest thing preventing T-Mobile from realizing its smartphone eden. According to analyst Jack Gold, one of T-Mobile’s biggest hurdles down the line will be responding to the impression — however real or imagined — that its network as bad as everyone thinks it is.

“T-Mobile has been known to not have the best service. Sometimes it works great. Sometimes it absolutely sucks,” Gold told me.

Sucky networks aren’t exactly a new problem, but they’re something mobile subscribers have had to deal with — because they’ve been forced to. Two-year contracts are legal prisons, and the process of switching is often more trouble than it’s worth. As much as it stinks, smartphone owners are often stuck with whichever carrier helped them get their phones.

But that dynamic goes out the window with T-Mobile’s new contract-free focus: Now its network has to be good. Otherwise, customers can just pay off their new iPhones and run back into the arms of AT&T when things go sour.

“If you’re going to be open, you have to be good. Otherwise, the customers are gone,” Gold said.

The double-edged sword of success

There’s another possibility here, to0: What if T-Mobile is too successful? What if so many new customers sign up with their data-hungry smartphones that T-Mobile’s LTE network buckles under the load? This, again, would drive customers away.

But is that a real danger? Not in the short term, says Gold. Right now, T-Mobile has more pressing things to worry  about — like actually adding subscribers in the first place.

“If T-Mobile suddenly added 50 million users, sure, their network’s going to have a problem. But they have a long way to go before they get there — their network has room to expand,” Gold says. (T-Mobile currently has roughly 30 million subscribers.)

And then there’s the Verizon and AT&T factor. As with the introduction of shared data plans or the shift from post-paid to prepaid plans, what T-Mobile is doing here is new and very different. How long will it be until other carriers follow suit? That’s still up in the air.

“If this works, it’s going to put pressure on the other guys, but I don’t think Verizon and AT&T are going to act quickly,” Gold said.  

Seeing as how AT&T’s reaction to T-Mobile’s announcements was a yawning “whatever,” something tells me its going to be quite a while before we similar efforts coming out AT&T. And that’s obviously good news for T-Mobile.

Image illustration: Ricardo Bilton/Venturebeat

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Carrier subsidies are increasingly standing in the way of innovation.

“We’re drunk off the subsidy model,” IDC analyst Ramon Llamas told VentureBeat last week.

The lure of cheap, subsidized phones underwritten by massively long two-year contracts stands in the way of competition and innovation. The big carriers use their contracts to lock in profits and help limit the customer “churn” that would otherwise make their revenues too unpredictable. But those two-year contracts keep people from upgrading as quickly as they would otherwise, stifling handset makers’ ability to get the latest models in our hands.

Carriers also stifle OS upgrades, keeping you from upgrading to the latest version of Android because they don’t want to invest the time to make it work with a string of older phones: They’ve already got you locked in to a contract, so why would they want to make your phone any better than it already is?

The U.S. is not unique in its dependence on carrier subsidies, but it’s not the only way: In many European countries, for instance, people buy their phones and SIM cards separately, without long, onerous contracts.

Some carriers are starting to see this as a wedge issue. T-Mobile, for instance, promises to do away with contracts and subsidies altogether. The carrier sees it as a more honest, direct model, and I agree: I’m done with contracts. I recently paid $245 to get out of my contract with a large carrier after I had endless problems with its service and its phones.

In an earlier column, I blamed Microsoft for not being able to solve these problems. It was an unfair criticism, but it does reveal an opportunity for the Redmond, Wash.-based software company.

We need someone to break the logjam. Could it be Microsoft?

Instead of standing by and playing the same ballgame as every other mobile phone maker, Microsoft should take a page from Apple’s book and rewrite the game. It’s got the leverage, it’s got the installed base, and it’s got a powerful weapon: cash.

In short, Microsoft should subsidize its own phones. Google currently offers the Nexus 4 for $299, unlocked and off contract. That’s a subsidized price, although the actual amount of the subsidy is probably far less than you might think. When you buy an unsubsidized iPhone for $650, only about $200 of that goes to the iPhone’s  component parts. Let’s be generous and assume that another $200 goes to manufacturing, shipping, and the manufacturer’s profit. That subsidized price is still higher by $250 than the actual cost to the carrier.

In other words, assuming that it, too, can get phones made for $400 apiece, it would cost Microsoft $100 to $200 each to subsidize unlocked, off-contract Windows phones to a sales price of $200 or $300.

That’s a small price to drive its currently anemic Windows Phone OS deeper into the mobile ecosystem.

It would cut out the carriers — those that depend on subsidies, anyway. A small benefit might be helping out the carriers like T-Mobile and Virgin Mobile that have a big incentive to take on the incumbents, and they’d in turn help Microsoft with aggressive, edgy advertising campaigns.

Now, Google can afford to subsidize Nexus 4s because it knows it will eventually make money from advertising and location services for Android users. Microsoft might make some small amount of money from Bing, but that’s not its real payoff.

The real benefit would be enabling Microsoft to sell directly to the large companies that make up the backbone of its revenues. It wants to tie Windows 8 closely together with Windows Phone 8, and this is one way to do it: With volume sales of corporate phones that are off-contract, work seamlessly with your corporate Windows 8 laptop or tablet — and, by the way, which are far more useful and hipper than anything Research in Motion is likely to produce.

Why I keep harping on Microsoft

I’ve been writing about Microsoft a lot this year because it’s one of the most interesting companies in tech right now.

With a market cap around $225 billion, annual revenues of $73 billion as of the fiscal year that ended in June, and net income around $17 billion, it remains a mighty company, one to be reckoned with.

Microsoft still outstrips IBM, Cisco, Intel, and many other giants of the tech world in size and revenues.

Microsoft’s research and development arms are unparalleled, with armies of Ph.D.s that few other companies can match. Even a long-time startup guy like Rahul Sood, who joined Microsoft over a year ago, can’t stop raving about how much talent the company has.

Microsoft’s financial power pales next to Apple, which still has a market cap of about $500 billion despite sudden (and rather inexplicable) losses last week, on about twice the revenue and more than twice the profits — over $41 billion for the last fiscal year.

It stands eye-to-eye with Google, which has almost exactly the same market cap on half the revenues and profits. Google is worth more on a P/E basis because its star is still rising, while Microsoft is a mature sun, and no one knows if it will keep burning for another billion years or if it’s going to blow up next year and obliterate its entire solar system.

Make no mistake, Google is Microsoft’s biggest threat. One glance at this slide from KPCB partner Mary Meeker’s annual Internet trends report, and you’ll see that mobile devices — led by Google’s Android OS — have rapidly blown away Microsoft’s dominance of the computing market in the past few years. (See that green triangle in the right corner: That’s Android.)

That’s why Microsoft’s mobile strategy is so critical. It’s going to do everything it can to regain control over the computing world. It may already be too late. But it’s certainly been interesting to watch.

I’d love to see Microsoft start tackling that by mining one of the areas most ripe for disruption today: our broken carrier subsidy model.