10/07/2008, 10:40am, EDT
Tuesday, October 7th
Apple too conservative on margins?
Apple's predictions on future gross margins may be overly conservative, say analysts with Piper Jaffray. The group notes that Apple has warned people of lower margins for its September quarter, guiding them down 330bps to 31.5 percent; the average sequential decrease over the past two September quarters is said to have been 220bps. Piper suggests that the new figure is too low, and is keeping to its estimate of 32 percent.
The firm notes, for instance, that although Apple based its margins on the promise of new products with lower margins, its only announcements in September were updated iPod nanos with old prices, and new Touches with a 23 percent price cut. While this might nominally hurt Apple, NAND memory pricing is said to be "at least in-line with typical seasonality," and so unlikely to affect the company. Similarly, the recent Back-to-School promotion -- which in some cases gave out free Touches -- is said to be unlikely to have had serious impact on Apple, at least in part because it should have increased Mac and/or iPod sales.
The situation is less clear moving into FY09, in which Apple has forecast margins of "about 30 percent" based on yet unrevealed lower-margin items. It is expected that cheaper, redesigned MacBooks will be released in October, possibly below the $1,000 mark, but this may actually be considered a plus by investors despite influencing Apple's profits.
Piper observes that if Apple's September-quarter results show a gross margin 1 percent higher than expected, it could produce a bonus of $0.06 GAAP EPS. The announcement of details is expected on October 21st.
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Oh! man I don't understan
I'm lost here ;-) In financial term.
Good move
It is better to be conservative on margin estimates rather than falling short of aggressive ones. Investors are unforgiving with Apple stock!
That trick never works.
The market will take the lowballing into account, so Apple stock will be priced based on what the market thinks Apple's margins will really be, so if their margins and up being 100 BP higher than they say they could still see their stock drop.
It's all headology.
lowballing
As resuna states, the market takes all this into account (as can be seen in Piper's statement.
But it isn't aggressive estimates they're saying is being avoided, just actual expected estimates.
However it is a 'good move' to avoid aggresive estimates. Not because investors are unforgiving with Apple stock (because investors have already priced it to their own aggressive ideas, anyway, not based on what Apple is saying), but because investors will sue your ass off if you miss badly (or even kind of badly).