Looking at Apple's Q3 and beyond; Emerging markets in focus

This week all eyes are on Apple (NYSE:AAPL) which will release its Q3 earnings on Tuesday. Every pundit, analyst and fanboy will be at best 'guessing' as to what Apple's quarterly will be like. The funny thing is that nobody ever gets it right and Apple keeps surprising again and again and again.

Currently consensus estimates for this quarter's sales and net income are USD37.3bn and 9.8bn respectively, equalling year on year growth of 30 percent and 34 percent. There are multiple reasons why the company could surprise (or disappoint). Emerging markets are now providing a huge market for the company. Furthermore, only two weeks of iPad 3 ('the new iPad) sales were included in Q2 in major markets, while iPad 3 was only released in China a few days ago, giving iPad revenues more room to run ahead of the fall's expected and rumoured releases such as iPhone 5 and the 'iPad mini' which should act as catalysts for the stock.

Emerging markets are the key to Apple's trillion dollar valuation
But while Apple has conquered the western markets, this horse still has a lot of room to run. Apple's strategy is quickly shifting from its North American markets to emerging markets which still hold a lot of potential for Apple. Currently Apple does not have access to 70 percent of the Chinese mobile subscriber base because the hardware configuration of the existing iPhones cannot fully run on China Mobile's networks. This is expected to change with the iPhone 5 release. Critics have said that Chinese consumers will not spend a huge portion of their income on expensive smartphones. Nevertheless, as anyone who has been to China knows, status is extremely important to the Chinese, and apart from owning a Gucci bag or a luxury car, an iPhone is the next best thing.

Additionally, Apple has not yet focused on penetrating India, leaving the company with an almost completely new market. The Indian market for tablets was small in 2011. At 390,000 units sold, Apple controlled 51 percent of the market that year despite the availability of low cost alternatives. Expect this number to explode in the coming years as India catches on, benefiting Apple and a multitude of other industry players.

So while everyone is focused on the next blowout quarter for Apple, the longer term picture is even better. And don't fret about the size of the company, there is no financial rule to say that it can't reach a trillion dollar valuation.

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