Apple (AAPL) is set to report second-quarter earnings this coming Tuesday. The drop in demand for the iPhone business will hit the quarter hard. The forecast for the next few quarters might come in weaker than expected as well. The good news is that the company has its services business to fall back on.

Demand Drop

Being that the iPhone is still the main product for Apple, it will be the most important unit to be watched on the May 2 earnings report. The problem is that analysts are anticipating a weak quarter. There is a belief that iPhone demand will be lower than normal.

The reason being is that the new iPhone 8 is expected to launch by fall or September this year. That means that there would be no need to upgrade to the iPhone 7 Plus now with the new phone approaching a few quarters from now. Most notably there are two analysts that expect the quarter to come in weaker than expected.

Analysts from J.P. Morgan and UBS see earnings weakness for the second quarter. Both analysts are even calling for weakness in the upcoming third quarter earnings report as well. J.P. Morgan analyst Rod Hall expects Apple to reveal its June forecast to come in at $1.53 earnings per share on revenue of $44.2 billion. Analysts are expecting the 3rd quarter to come in at $1.63 earnings per share on revenue of $ 45.7 billion.

Both the second and third quarter will be weak as consumers wait for the newer iPhone 8. It would be wise to trade Apple with put options for both the upcoming second and third quarter earnings. The only time to use call options would be when the fourth quarter approaches. That is because the quarter will involve some sales for the iPhone 8.

Fall Back Plan

With Apple’s iPhone business having near flat growth compared to a few years ago, something has to take its place. That is something that Apple has delivered upon greatly. That is because it has been able to make its “services” category a clear cut winner in boosting earnings.