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Apple Earnings: The Mother of All Reports (Update 2)

Tickers in this article: AAPL QCOM T VZ
Updated from 11:12 a.m. EST to provide portfolio manager comments in the third paragraph.

NEW YORK ( TheStreet) -- It's the mother of all earnings reports. Apple's (AAPL) slated to report earnings and guidance after the close of trading, and given the malaise towards the iPhone maker lately, Apple will need to show something extraordinary to excite investors and regain the aura that's surrounded the company in the past.

There have been countless reports over the past few months that Apple's seeing slowing demand for its products, whether it's the all-important iPhone , or concerns over the iPad .

Expectations have been lowered going into the report, and Ironfire Capital's Eric Jackson thinks Apple will meet the expectations, and "that will cause a lot of hand-wringing this afternoon about whether the law of large numbers is kicking in." Going a little further out, Jackson believes shares will be higher, as people start to look toward the rest of 2013. Jackson owns shares in Apple and is a RealMoney contributor.

Judging by recent smartphone numbers from Verizon (VZ) and AT&T (T) , iPhone activations are less of a concern than they were, which should be a positive for Apple this quarter. Verizon activated 6.2 million iPhones in its most recent quarter, with half of them iPhone 5s. AT&T said it activated 10.2 million smartphones, with most analysts believing that around 75% of them were iPhones.

Last quarter, the iPhone accounted for nearly 50% of Apple's revenue. The Cupertino, Calif.-based firm generated $36 billion in overall sales during its fiscal fourth quarter.

Analysts polled by Thomson Reuters are looking for earnings of $13.47 a share on $54.7 billion in revenue. The most important number in the earnings release, in my opinion, is gross margin.

With Apple refreshing its entire product line in a little under two months towards the end of 2012, CEO Tim Cook warned that gross margins would go down, then move back up through the rest of the year.

J.P. Morgan analyst Mark Moskowitz believes Apple can achieve 39.3% in gross margins this quarter, which would bode well for earnings. "For Apple, we believe much of investor anxiety has been related to the potential movement of gross margin over time," he wrote, in a note. "As discussed previously, if Apple is able to improve corporate gross margin closer to the 40% threshold, then we believe the Apple story can come back into favor. Our gross margin estimates for Dec-Q and F2013 are now 39.3% and 40.6%, versus 38.7% and 40.3% previously."

Moskowitz rates Apple "overweight" with a $725 price target.

Margins really are the key to the report, as well as forward guidance, said one hedge fund analyst who declined to be named. "If they guide weak on margins, no EPS number will be good enough because everyone is so worried about the future that the recent past loses its relevance."