Apple's gross margins expected to improve as iPhone 4 'antennagate' ends
The end of Apple's free iPhone 4 case giveaway, along with improved production of the iPad, will help the company's gross margins improve, one analyst believes.
Apple Chief Financial Officer Peter Oppenheimer last week participated in a conference call with New York-based investment firm Gleacher & Company. Unsurprisingly, Oppenheimer did not reveal any incremental information about Apple, but analyst Brian Marshall did state he believes Apple's gross margin profile is in the process of bottoming.
"In fact, if we are correct in our assessment that 'antenna-gate' is behind us and the bumper give-away will cease soon, APPL's gross margin will automatically improve 100bps assuming all else equal (due to $175mil revenue deferral reversal)," he wrote. "If this happens, in our view, one of the greatest investor concerns will be lifted."
In the company's last quarterly earnings conference call, Apple said it would defer about $175 million to buy cases for the iPhone 4 Case Program. That cost will be recognized upon delivery to customers.
In July, Apple Chief Executive Steve Jobs announced that his company would give away free cases to all iPhone 4 buyers through Sept. 30. After that date, the company will review the situation and conclude whether or not it will continue the giveaway.
In addition to the potential conclusion of the iPhone 4 Case Program, Marshall also sees Apple's margins improving as production of the iPad continues to ramp up and the manufacturing process continues to improve.
Marshall also noted that the Mac is likely to see market share gains in the current quarter due to a strong back-to-school season. He also does not believe that the iPad is cannibalistic to any of Apple's other products, and he projected that the new iAds mobile advertising network could drive roughly $1 in incremental annual earnings per share when fully ramped.
Finally, Marshall also noted that Apple seems to launch "revolutionary products" on a three-year cycle: The iPod ramp took place in 2004, the iPhone was launched in 2007, and the iPad debuted in 2010. Next up for Apple, he believes, is the living room, perhaps in 2013.
"For now, we will have to be satisfied with Apple TV," he said.
Gleacher & Company reiterated its "buy" rating for AAPL stock, and has maintained a price target of $345.
Apple Chief Financial Officer Peter Oppenheimer last week participated in a conference call with New York-based investment firm Gleacher & Company. Unsurprisingly, Oppenheimer did not reveal any incremental information about Apple, but analyst Brian Marshall did state he believes Apple's gross margin profile is in the process of bottoming.
"In fact, if we are correct in our assessment that 'antenna-gate' is behind us and the bumper give-away will cease soon, APPL's gross margin will automatically improve 100bps assuming all else equal (due to $175mil revenue deferral reversal)," he wrote. "If this happens, in our view, one of the greatest investor concerns will be lifted."
In the company's last quarterly earnings conference call, Apple said it would defer about $175 million to buy cases for the iPhone 4 Case Program. That cost will be recognized upon delivery to customers.
In July, Apple Chief Executive Steve Jobs announced that his company would give away free cases to all iPhone 4 buyers through Sept. 30. After that date, the company will review the situation and conclude whether or not it will continue the giveaway.
In addition to the potential conclusion of the iPhone 4 Case Program, Marshall also sees Apple's margins improving as production of the iPad continues to ramp up and the manufacturing process continues to improve.
Marshall also noted that the Mac is likely to see market share gains in the current quarter due to a strong back-to-school season. He also does not believe that the iPad is cannibalistic to any of Apple's other products, and he projected that the new iAds mobile advertising network could drive roughly $1 in incremental annual earnings per share when fully ramped.
Finally, Marshall also noted that Apple seems to launch "revolutionary products" on a three-year cycle: The iPod ramp took place in 2004, the iPhone was launched in 2007, and the iPad debuted in 2010. Next up for Apple, he believes, is the living room, perhaps in 2013.
"For now, we will have to be satisfied with Apple TV," he said.
Gleacher & Company reiterated its "buy" rating for AAPL stock, and has maintained a price target of $345.
Comments
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Marshall also noted that the Mac is likely to see market share gains in the current quarter due to a strong back-to-school season.
Why should any of us care about market share gains?
Why give such heavy weight to a very low cost item veers the over all cost to produce ?? Or is it the LOSS of 29 profit per bumper that sticks apple in the gut ???
dunno dept
9
Why should any of us care about market share gains?
Well that means the IPAD IS NOT hurting imac sales.
I guess.
9
Finally, Marshall also noted that Apple seems to launch "revolutionary products" on a three-year cycle
That may be more coincidence than intentional. If they've got something that's ready to sell, they're not gonna just wait around for their "cycle." AppleTV has been a "hobby" for several years now and I'm sure the only thing holding back the revamped model is content deals with the studios. Google is being aggressive in this space, and internet-connected TVs are starting to gain a little steam. 2013 may be too late.
As always, the voice of the unhappy is louder than the happy. I haven't heard much about the antenna since the press conference and was personally a non-issue for me.
I had all the antenna problems, to the point where it would even drop to no bars while standing next to a MicroCell if I held it normally in my left hand (to, say, tap with my right). The bumper case fixed it entirely, and now the reception is better than any previous iPhone. The question is whether Apple is going to keep giving them away or force people to buy them separately with every iPhone 4. I'm not sure they can get away with the latter-- they want antennagate to stay in the past and not to re-surface, and $100M a year is small change to keep the iPhone juggernaut rolling.
I also have to dismiss this three year cycle BS. Apple could have some major winners on its hands right before Christmas. ITV for one has some potential but i think the big winners will be the FaceTime compatible iPods which ought to have a tremendous impact on sales.
Plus AIR could be refactored into something useful.
Of course you might say these are not new products, which is technically true. Simply putting FaceTime on iPods instantly makes them new products in the eye of the user. Compelling products for many actually. With FaceTime touch devices instantly become a new product.
Dave
The iPod launched in 2001. So much for researching your facts.
these are .30 ct. cent bumpers ........
Why give such heavy weight to a very low cost item veers the over all cost to produce ?? Or is it the LOSS of 29 profit per bumper that sticks apple in the gut ???
dunno dept
9
It's the cost of the bumpers - that drops the profit margin by 1%... That concerns investors. Apple probably couldn't care less, they're selling every single iPhone4 and iPad they can make.
My prediction is that in October the free case program goes away particularly because internationally it's not really an issue. At worst Apple will maintain it for US customers only.
So starting October not only can we put antennagate behind us but we can grab the popcorn and watch Apple waltz into yet another most profitable quarter ever.
Why should any of us care about market share gains?
Well that means the IPAD IS NOT hurting imac sales.
I guess.
9
Well that's one thing, yeah.
Well that means the IPAD IS NOT hurting imac sales.
I guess.
9
iPad sales can hurt Mac sales when the former becomes mainstream. Not so fast!
iPad sales can hurt Mac sales when the former becomes mainstream. Not so fast!
How many millions more do they have to sell before you would call the iPad "mainstream?"
I am far more concerned about the fact that millions of units of sales are perhaps being foregone because of production constraints, and the additional millions waiting for the white phone (some of whom might be tempted to switch to non-iPhones).
Why still no word on white?
Papermaster looks to have been a total disaster: overall, this has been an instance of extremely poor execution by Apple.
these are .30 ct. cent bumpers ........
Why give such heavy weight to a very low cost item veers the over all cost to produce ?? Or is it the LOSS of 29 profit per bumper that sticks apple in the gut ???
dunno dept
9
cost of materials, manufacture, packaging AND shipping. probably a fair bit more than $0.30
cost of materials, manufacture, packaging AND shipping. probably a fair bit more than $0.30
Also, they are sourcing some 3rd-party cases for this purpose, and that cost is almost certainly higher than bumper costs.
How many millions more do they have to sell before you would call the iPad "mainstream?"
If iPad emerges a winner in the face of competition, then it likely becomes mainstream. Let other bigwigs come with their tablets/slates.
This three-year cycle is hogwash.
The iPod launched in 2001. So much for researching your facts.
so the iphone launched after 2 three year cycles
(sorry, i had to do that, this is VERY trolly)
If iPad emerges a winner in the face of competition, then it likely becomes mainstream. Let other bigwigs come with their tablets/slates.
Sounds like inverted logic to me. It seems you are saying that if the iPad competes well with other (mainly yet to be seen) products in the category, then it may begin to eat into Mac sales. My feelings is that the risk to Apple and Mac sales is a failure to compete in this category, not to succeed in it.
Antennagate was of trivial consequence for Apple's margins.
I am far more concerned about the fact that millions of units of sales are perhaps being foregone because of production constraints, and the additional millions waiting for the white phone (some of whom might be tempted to switch to non-iPhones).
Why still no word on white?
Papermaster looks to have been a total disaster: overall, this has been an instance of extremely poor execution by Apple.
You said it, mate. Here in NZ you can't get new iPhones for love nor money (I have tried both).
Some peeps managed to get one in the small shipment that came in a couple of weeks ago, but I heard it was less than 10k of phones. Not much for a whole country!
If I don't get one before the end of September, then I will have to give up. I guess Apple doesn't want my money!
BTW the need to get a new phone is because it is dependent on selling my 3GS. If you have to wait too long for the new model you miss the resell cycle of the second hand market here.
Bummer.