Apple Inc. (NASDAQ:AAPL) will release its next earnings report in less than two hours, and expectations are running pretty low. The iPhone 6s was a huge disappointment, the iPhone SE has been cannibalizing it, and Apple Inc. (NASDAQ:AAPL) is looking like it’s made of glass rather than the gold it once was. The company’s valuation is in line with that of IBM, notes one firm, which we would point out is interesting in light of Warren Buffett’s interest in both.

Apple (AAPL) Earnings Preview

What to expect in Apple’s (AAPL) earnings report

Apple Inc. (NASDAQ:AAPL) is expected to report non-GAAP earnings of $1.38 per share on $42.1 billion in revenue, compared to the year-ago quarter’s $1.85 per share in earnings and $49 billion in sales. Wall Street is also looking for a GAAP gross margin of 37.9% and GAAP earnings of $1.36 per share. Management guided for between $41 billion and $43 billion in sales and a GAAP gross margin of 37.5% to 38%.

In a signal of just how bearish Wall Street has gotten on the iPhone maker, BGC downgraded it to Sell, saying that he doesn’t think there’s any hope of real innovation returning under Tim Cook—a sentiment echoed by Investing.com Senior Analyst Clement Thibault as well.

Apple (AAPL) valued like IBM

In a report dated July 26, UBS analyst Steven Milunovich noted that Apple Inc. (NASDAQ:AAPL) has about the same P/E ratio as IBM right now and a higher EV/FCF multiple. He added that even though Apple Inc. (NASDAQ:AAPL) is having problems with its product cycles, its long-term growth and margins are expected to be better than those of IBM. He believes investors are hesitating to look past these issues because they view the iPhone maker as fragile, based on Nassim Taleb’s concept of fragility.

Of course volatility and uncertainty are bad for things that are fragile, while change is good for things that are durable. Mulunovich explains that large tech companies are usually more fragile than they appear to be because the structure of the industry changes about every two decades, using his Wave Principle as a basis.

“Past success tends to mean future distress—we think Apple must show it is fragile,” he explains.

Apple’s iPhone dependence makes it fragile

The UBS analyst said Apple’s dependence on the iPhone and also on China make it fragile. Other threats are also rising, such as phones made by competitors that are deemed to be “good enough,” especially in China. Additionally, the Chinese government is making it difficult for the company to do business there.

While others are calling out Apple for its recent lack of innovation, Milunovich argues that it can’t really experiment too much because a luxury brand such as Apple “can never deliver a bad experience.” However, he also suggests that in order to make itself less fragile, the iPhone maker could diversify its platform. He explains that Apple’s ecosystem being a “multi-sided platform” helps because it causes the question to be when consumers will buy their next iPhone and not if.

He applauded the company’s decision to open Siri and Messages to developers, but also called for additional diversification by product and geography. He also said extra annuity revenue would help the company improve its fragility situation as well. Additionally, Milunovich called for new product categories like virtual reality and the rumored car. He also suggested an emphasis on “the Apple customer experience over products” and potentially “a blanket subscription.”

Of course we won’t hear anything about new products tonight, but all eyes will be on those iPhone unit and gross margin numbers as Wall Street weighs just how badly Apple hurt itself with the less expensive iPhone SE.

Shares of Apple stock edged lower on Tuesday, falling by as much as 0.56% to $96.79 ahead of tonight’s earnings report.