Apple's Q1 earnings last year blew past all expectations. Apple earned $13.87 per share - more than doubling the profit from the year-earlier quarter -- by selling a record 37 million iPhones and 11 million iPads.
And Apple is going to need the profits from every gadget it can sell if it hopes to top that benchmark.
That's why all eyes were focused on the long-anticipated iPad Mini yesterday (Tuesday), but the real story was the avalanche of product updates unleashed just in time to supercharge for its critical December quarter.
In addition to the Apple iPad Mini, the special event in San Jose, CA, included the surprise announcement of the fourth generation iPad, a revamp of the iMac and Mac Mini desktops, and a the upgrade of the 13-inch MacBook Pro laptop to a high-res Retina display.
"We're not taking our foot off the gas," said Apple CEO Tim Cook.
When taken together with the iPhone 5 launch and the upgrades to the iPod Touch and iPod Nano just last month, it adds up to an uncharacteristic bunching of product updates.
It means lots of fresh Apple gear in stores for the holidays, historically the company's biggest quarter of the year.
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Why Apple (Nasdaq: AAPL) Needs Great Q1 EarningsIn a sense, Apple has become a victim of its own success.
The explosive growth of Apple earnings, driven by the explosive growth of iPhone sales (and that product's huge profit margins), has made huge earnings increases routine.
But Apple knows the tough comparisons to year-ago quarters will get Wall Street's attention.
And as Apple's growth rate slows, so will the rise of the stock.
The result is that Microsoft's stock has risen just 5.5% over the past 10 years.
That's not a road that Apple wants to travel.
While the recent barrage of product updates should help Apple in Q1, it means Apple will need to keep up the pace in 2013 and beyond. The days of refreshing products just once a year may be over.
Even then, Apple won't be able to manage significant growth unless it also keeps adding new products, or finds new markets for existing ones.
Some on Wall Street have already recognized this.
"The single biggest concern I hear is Apple has perhaps lost a step on the innovation front," Will Power, senior analyst with Robert W. Baird & Co, told The Wall Street Journal. "That is the secret sauce at Apple, and if they don't stir that, that is going to create problems."
AAPL's Uphill Earnings BattleWhile last year's Q1 earnings was a record, the degree that it beat the previous year's quarter was not. Apple's profit increased 118% year-over-year in the last December quarter, but did even better in 2011's June quarter, when profits rose 125% year-over-year.
In fact, before the disappointing Apple earnings from this year's June quarter, the average of the year-over-year increase in profits for the previous six quarters was a startling 94%.
That's one reason why Apple stock is up over 200% this year, even after falling more than 12% in the past month.
But it has also raised expectations that are getting increasingly difficult to meet.
For example, profits in the June quarter were up just 20.5% year-over-year. And the consensus for Apple's September quarter - the company reports after the market close tomorrow (Thursday) - is for earnings of $8.82 a share, which would be a 25% year-over-year increase.
Analyst estimates for Apple's December quarter earnings is $15.45 a share - a stunning figure, but just 11.4% higher than last year's Q1 monster earnings of $13.87 a share.
That's where the wave of new products fits in. The fresh line-up should give Apple's bottom line an extra boost in the December quarter and help offset the appearance of slowing growth.
Some analysts dismissed the iPad Mini as a smaller knockoff of an existing product, but in fact it's a good example of the kind of thing that will help Apple fuel future growth.
While not totally new or groundbreaking, the iPad Mini will expand the appeal of Apple's market-leading iPad to a broader market while making it harder for rivals to compete.
"We see [the iPad Mini's] smaller size and price helping set Apple up to both a) expand, and b) capture even greater share of the thin-client tablet market it pioneered," said Evercore's Rob Cihra.
Apple (Nasdaq: AAPL) earnings for Q4 will be released Thursday after market close.
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Apple Special Event Oct. 23, 2012 (Streaming video)