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Concern over Apple's 'cyclical' margins called 'overblown'

post #1 of 31
Thread Starter 
While some investors are concerned about Apple's reduced margins in the face of multiple new product launches, one analyst has noted that Apple's margins previously took a hit following the iPhone 4 launch, and subsequently rebounded to new heights.

Chris Whitmore of Deutsche Bank issued a note to investors on Monday calling concern over Apple's near-term margins "overblown." He believes recent hits to the company's stock price have created a "very attractive entry point" for those looking to buy.

"We believe this step down in margins is nearly entirely cyclical and not structural," Whitmore wrote. "In fact, this margin step down is not without precedence. There is a striking parallel between Apple's margin outlook for the iPhone 5 ramp and the prior iPhone 4 cycle ? which was the last complete iPhone overhaul."

Deutsche Bank


Following the launch of the iPhone 4 in 2010, Apple's gross margins took a significant hit. Apple advised investors accordingly, guiding margins to about 35 percent, citing "higher cost structures" of the newly launched iPhone 4 and iPad.

But Apple's margins also began to rebound almost immediately in the following quarter as production of the iPhone 4 began to ramp up.

Like with the launch of the iPhone 4 in 2010, Whitmore believes Apple's gross margins will only dip for a single quarter. He also noted that the company typically beats its own margin guidance by between 2 and 4 percentage points. As such, he believes there is "a healthy amount of conservatism" in Apple's margin guidance for the first quarter of fiscal 2013.

Whitmore joins a long list of analysts who have advised investors to stand by Apple in the face of shrinking margins. Apple officials have said they expect the company's margins to improve once production of its new products, namely the iPhone 5 and iPad mini, is streamlined.
post #2 of 31

These guys are not to be trusted, any of them.

Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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post #3 of 31
Quote:
Originally Posted by Ireland View Post

These guys are not to be trusted, any of them.

 

I think most analysts are untrustworthy, but his logic and explanation in this case seems sound, no?

post #4 of 31

Margins? Who cares? Apple has what, 129 billion in the bank?

 

*If* the odd price of the mini *was* based on margin, then Apple is playing a losers game. They are probably the only company that *can* afford to buy share, and they aren't.

 

I fear a loss of developer mindshare if they continue with the high-right policy, and the in-house everything. I've been around long enough to see the obvious parallels with the Apple of the 1990s, post Steve-1.0.

post #5 of 31
Apple=Money
Period.
Like Maury pointed out, Apple has 129 billion in the bank.Damn!
But greed is crazy.
We could give Wall Street the printing presses, plates and paper from the treasury department and tell them to go ape sh** with it. You know what would happen?
Wall Street would still cry poor mouth.
The government could tell the private sector:No more taxes nor regulation. No more paying out to FICA, nothing. But it would still not be enough.
post #6 of 31
". . . parallels with Apple of the 1990s. . ."!!!!

Ridiculous. As pathetically stooooopid as all of this rampant compulsion to predict the future by looking into the past.

Daniel Swanson

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Daniel Swanson

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post #7 of 31
Quote:
Originally Posted by Ireland View Post

These guys are not to be trusted, any of them.

Normally I would agree, but this I think different.

Why? Because this guy isn't talking out of his butt, making claims about products, cost to produce, sales numbers blah blah. He's basically saying that this happens to all companies from time to time, that this isn't the first time the doom and gloom teams did this to Apple and it was fine then and will likely be fine now. So chill the F out and wait. Team D&G will almost certainly, in his opinion, be proven wrong and this isn't the proof that Cook is a moron out of his league and Apple is crashing into oblivion etc.

He actually looked at the facts of the past and analyzed instead of reading his morning poop. So on this case I'll actually pay attention. If he keeps this way he might be the first respectable analyst I've ever encountered.

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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post #8 of 31
Quote:
Originally Posted by Maury Markowitz View Post

Margins? Who cares? Apple has what, 129 billion in the bank?

*If* the odd price of the mini *was* based on margin, then Apple is playing a losers game.

Or not. Fact is that Apple is seen by many as a luxury brand and thus they can get away with price tactics others can't. Preorders on the iPad Mini sold out buy the number hasn't been revealed. It could be a meh, it could be amazing. Even if its a meh, it could be because folks would rather chance a line and this weekend could more than make up for it, as might the cell release (I suspect this will be the high seller )

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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post #9 of 31
As so many more players came to the smart phone market since the iPhone was introduced, Apple will be better off innovationg faster in order to increase sales volumes with more competitive products and features. What good does the best margin do you if you don't sell enough products?
post #10 of 31
Originally Posted by BandiTT View Post
…Apple will be better off innovationg faster in order to increase sales volumes with more competitive products and features. 

 

How does "innovating faster" create more product?


What good does the best margin do you if you don't sell enough products?

 

They already can't MAKE enough at their current margins.

post #11 of 31
Quote:
Originally Posted by Ireland View Post

These guys are not to be trusted, any of them.

Yes, it is far better to trust Internet trolls
post #12 of 31
Originally Posted by ifij775 View Post
Yes, it is far better to trust Internet trolls

 

Hey, at least they're consistent.

 

"Apple Is Doomed!™"

post #13 of 31
Quote:
Originally Posted by Tallest Skil View Post

 

How does "innovating faster" create more product?

 

They already can't MAKE enough at their current margins.

 

After 12 and sometimes 15 month iPhone product cycles in the past, the competition with faster cycles had an easier time to bring out new products that are faster with new features.

 

And while Apple can't make enough phones in the first weeks after launch this situation will settle way before the product cycles refreshes. So I am in favor of shorter cycles for Apple products, even if that means that the margins are a bit smaller. I think that Apple will sell more products to compensate the decrease in margins.

post #14 of 31
Originally Posted by BandiTT View Post
After 12 and sometimes 15 month iPhone product cycles in the past, the competition with faster cycles had an easier time to bring out new products that are faster with new features.

 

Why would someone want this, though?

 

And while Apple can't make enough phones in the first weeks after launch…

 

Lasts longer than that… 

 

…this situation will settle way before the product cycles refreshes.

 

Yeah, because fewer people will be buying the iPhone, turned off by its Android-like turnover rate.

post #15 of 31
So let me get this straight. The same people complaining about margins are the ones whining that the mini is too expensive? WTF?
post #16 of 31
Quote:
Originally Posted by Tallest Skil View Post

 


Yeah, because fewer people will be buying the iPhone, turned off by its Android-like turnover rate.

 

I don't think that the Android turnover rate is what is discouraging customers. I think it is the fragmentation of products and features from different companies. And the Android OS upgradability seem to be a real sore for some Android users.

I think that Apple as the manufacturer of the hardware and software has much less fragmentation - even at faster product cycles. The next phone will just be faster and better every 9 instead of 12-15 month.

post #17 of 31

When it comes to Apple, everything the Anal-ists do is overblown, always in the negative. Other companies have microscopic margins and there stocks SOAR when they make a profit like Apple did.

post #18 of 31
Quote:
Originally Posted by b9bot View Post

When it comes to Apple, everything the Anal-ists do is overblown, always in the negative. Other companies have microscopic margins and there stocks SOAR when they make a profit like Apple did.

 

Or companies like Amazon, who lose money, but the analysts love them. Market analysis, and economic analysis generally, simply isn't a rational process, in most cases.

post #19 of 31

The expectations placed on Apple are completely absurd.   Most mass-market consumer oriented companies have margins in the 10% range.    Furthermore, Apple releases a projection, they beat it, but because some analyst projected even higher, the stock falls.     Then I hear some idiot on TV complaining that Apple hasn't come up with another completely new game-changing product line as yet as if this is something that all companies do every day instead of once in a lifetime, if at all.   

 

In a still sucky world economy, Apple just beat last year by 25% and sold 27 million iPhones, up 58%.   What other company puts out these kinds of numbers?

 

Apple has completely changed the definition of what constitutes success with a new product line.   Apple does in days what used to take years.   It took VCRs 58 months to reach 1 million units.  It took CD players 28 months.   It took DVD 21 months.   Apple sold 1 million iPhones in the 1st 90 days, 4 million iPhone 4's in the 1st weekend and 3 million iPads in the first 80 days and 14 million in the last quarter (which the Market considers a failure.)

 

But I don't care because Apple stock at $600 is a bargain and I'm buying some more. 

post #20 of 31
Originally Posted by charlituna View Post

Or not. Fact is that Apple is seen by many as a luxury brand and thus they can get away with price tactics others can't.

 

Oh, absolutely... but I'm not concerned about Apple's sales, I'm concerned about the health of the Apple market. These two go hand in hand, don't get me wrong, but they're *not* the same.

 

But there's a fundamental difference between computers and, say, stereos. For stereos, you can sell dramatically overpriced gear as long as someone buys it and you keep your margins. That's because (generally) anyone can plug any bit of stereo into any other bit of stereo. So buying one doesn't mean you have to buy everything else for that. The same is not true for computers, where you cannot plug a Windows application into a Mac.

 

So, it's perfectly OK for B&O to sell dramatically overpriced gear. The high price of their gear does not lower the size of the overall market. If someone chooses to buy a lower priced amp, say a Sony, all of the other companies in the ecosystem will still have the same number of customers. And those customers still pay the same price for everything else in the "audio world", say an iTunes download or a pair of speakers.

 

The same is not true for a closed platform ecosystem like iOS. If a customer chooses to buy a lower cost solution, like a freebee Android phone, then *everyone* in the iOS ecosystem loses a customer. You can't buy an iOS app for Android, so all of that money goes away. 

 

Do you see the fundamental difference there?

 

This fact does not mean there *is* a problem, just that one can occur. There is a balance between number of customers and profit margins that is almost certainly in Apple's favour right now. But if that were to change, and developers were to find greater profits in Android, the market would dry up as fast on Apple as it did on RIM, even if sales of the devices themselves continued at the same pace.

 

And on top of that, there is the coolness factor issue to consider. Developer's only have so much time, and brainshare. When a platform becomes less attractive, they stop supporting it, quickly. "Less attractive" can mean many things. It could be a lousy return on investment, like RIM (ask any RIM developer). But it could also mean having to jump through hoops and pay lots of money to distribute your app.

 

Right now it is clear that iOS still has relatively strong coolness, but certainly not what it had two years ago. It also has a better ROI, although I suspect that is being eroded too. It definitely is better to develop on. On the other hand, Google has dramatically increasing market share in all segments, and no signs of slowing. It also has an open platform for both development and distribution. Both of these are *major* plus points, do *not* discount this.

 

I think it's perfectly valid to look at the past for hints of the future. Apple lost the coolness battle prior to the release of Windows95. Sales staggered on for some time, even increasing in cases, but as the developers fled the platform the applications dried up and suddenly there was no software for the platform. This has happened to many platforms even over the last decade - Palm, Symbian, BREW, etc. Anyone who thinks that it couldn't happen to Apple is dreaming.

post #21 of 31

Originally Posted by Tallest Skil View Post

Why would someone want this, though?

 

New features? You're joking, right?

 

Or perhaps you are confusing new customers with existing ones?

 

You complained about churn, but unless that churn is *to* the iPhone then Google doesn't care. Right now, it seems like most of that churn is to Samsung, and I'm sure they like that just fine.

post #22 of 31

to those timid short term investors of Apple, we don't want you. Dont buy it. Don't screw with the long term investors. Buy bonds if you don't like the risk.

post #23 of 31
Originally Posted by Maury Markowitz View Post
New features?

 

That's obviously what I meant.

post #24 of 31
Quote:
Originally Posted by Maury Markowitz View Post

 

Oh, absolutely... but I'm not concerned about Apple's sales, I'm concerned about the health of the Apple market. These two go hand in hand, don't get me wrong, but they're *not* the same.

 

But there's a fundamental difference between computers and, say, stereos. For stereos, you can sell dramatically overpriced gear as long as someone buys it and you keep your margins. That's because (generally) anyone can plug any bit of stereo into any other bit of stereo. So buying one doesn't mean you have to buy everything else for that. The same is not true for computers, where you cannot plug a Windows application into a Mac.

 

So, it's perfectly OK for B&O to sell dramatically overpriced gear. The high price of their gear does not lower the size of the overall market. If someone chooses to buy a lower priced amp, say a Sony, all of the other companies in the ecosystem will still have the same number of customers. And those customers still pay the same price for everything else in the "audio world", say an iTunes download or a pair of speakers.

 

The same is not true for a closed platform ecosystem like iOS. If a customer chooses to buy a lower cost solution, like a freebee Android phone, then *everyone* in the iOS ecosystem loses a customer. You can't buy an iOS app for Android, so all of that money goes away. 

 

Do you see the fundamental difference there?

 

This fact does not mean there *is* a problem, just that one can occur. There is a balance between number of customers and profit margins that is almost certainly in Apple's favour right now. But if that were to change, and developers were to find greater profits in Android, the market would dry up as fast on Apple as it did on RIM, even if sales of the devices themselves continued at the same pace.

 

And on top of that, there is the coolness factor issue to consider. Developer's only have so much time, and brainshare. When a platform becomes less attractive, they stop supporting it, quickly. "Less attractive" can mean many things. It could be a lousy return on investment, like RIM (ask any RIM developer). But it could also mean having to jump through hoops and pay lots of money to distribute your app.

 

Right now it is clear that iOS still has relatively strong coolness, but certainly not what it had two years ago. It also has a better ROI, although I suspect that is being eroded too. It definitely is better to develop on. On the other hand, Google has dramatically increasing market share in all segments, and no signs of slowing. It also has an open platform for both development and distribution. Both of these are *major* plus points, do *not* discount this.

 

I think it's perfectly valid to look at the past for hints of the future. Apple lost the coolness battle prior to the release of Windows95. Sales staggered on for some time, even increasing in cases, but as the developers fled the platform the applications dried up and suddenly there was no software for the platform. This has happened to many platforms even over the last decade - Palm, Symbian, BREW, etc. Anyone who thinks that it couldn't happen to Apple is dreaming.

You definitely make some excellent points.  As far as the smartphone market is concerned, some developers are actually developing for Android first, iOS second due to the sheer market share of Android on smartphones.  On tablets, iOS still is king but there's increasing competition on the low end (Nexus 7) and the high end (Windows 8/RT).  I love the Apple ecosystem but no doubt Apple has to be feeling the heat.  Their hardware is great but personally, I think it's their software / services that are holding them back.  

post #25 of 31

Wall street decided to hate Apple for no reason, stock is trading at 14 PE and is near its 200 DMA.  Unless you think Apple is really Doom my recommendation is to buy here and if we get below 580, back up the truck and load with everything you can.

 

Apple is forecasting 52 billions in sales, and 11.7 EPS.   If for whatever reason they get better margins or they buy back shares (like they are suppose to do) the EPS guidance is going to be blown out of the water.  I think Apple lowball EPS in an attempt to keep analyst to over-estimate.

 

That being said, Apple is experiencing decelerating growth, look at the number for the past 3 years:

 

PREVIOUS EARNINGS:

2010 Q1 (Ending 12/31/10) Guidance = $4.80; Actual = $6.43;(Beat = 40.0%)

2011 Q2 (Ending 3/31/11) Guidance = $4.90; Actual = $6.40; (Beat = 30.6%)

2011 Q3 (Ending 6/31/11) Guidance = $5.07; Actual = $7.79; (Beat = 53.6%)

2011 Q4 (Ending 9/24/11) Guidance = $5.50; Actual = $7.05 (Beat = 28.2%)

2012 Q1 (Ending 12/31/11) Guidance = $9.30; Actual = $13.87 (Beat = 49.1%)

2012 Q2 (Ending 3/31/12) Guidance = $8.50; Actual = $12.30 (Beat = 44.7%)

2012 Q3 (Ending 6/30/12) Guidance = $8.68; Actual = $9.32 (Beat = 7.4%)

2012 Q4 (Ending 9/29/12) Guidance = $7.65; Actual = $8.67 (Beat = 13.3%)

 

Normaly a stock with growth like Apple should trade at a multiple of 20 or more.  When a company is seeing decelarating growth, its normal to have its multiple compress. But the problem is Apple was already trading at a very low multiple of 15, so PE compression put the stock in defensive value stock territory.  And Apple is trading below the averave value stock. That makes Apple a very very cheap stock.


Edited by herbapou - 10/29/12 at 11:26am
post #26 of 31
There were moans about Apple making too high a profit margin. So it sounds like the timing of the margins when the new releases are taking place was strategically clever.
post #27 of 31
Quote:
Originally Posted by BandiTT View Post

 

I don't think that the Android turnover rate is what is discouraging customers. I think it is the fragmentation of products and features from different companies. And the Android OS upgradability seem to be a real sore for some Android users.

I think that Apple as the manufacturer of the hardware and software has much less fragmentation - even at faster product cycles. The next phone will just be faster and better every 9 instead of 12-15 month.

Uh... doesn't seem like ANYTHING is discouraging Android buyers.  Hello?

post #28 of 31
Quote:
Originally Posted by maccherry View Post

Apple=Money
Period.
Like Maury pointed out, Apple has 129 billion in the bank.Damn!
But greed is crazy.
We could give Wall Street the printing presses, plates and paper from the treasury department and tell them to go ape sh** with it. You know what would happen?
Wall Street would still cry poor mouth.
The government could tell the private sector:No more taxes nor regulation. No more paying out to FICA, nothing. But it would still not be enough.

Stock values bet on future growth. The analyst here merely suggested that while margins do affect growth, they're likely to rebound here. If anyone is anticipating newer processes with higher margins than the last over their first months of production, they are likely trying to influence the stock price.

 

Quote:
Originally Posted by Tallest Skil View Post

 

Hey, at least they're consistent.

 

"Apple Is Doomed!™"


I realize yours is sarcastic, but I get so tired of uninformed predictions (note that mine are more of possible things I'm going to watch than actual predictions).

post #29 of 31
Quote:
Originally Posted by cameronj View Post

Uh... doesn't seem like ANYTHING is discouraging Android buyers.  Hello?

 

This was in reply to Tallest Skil "Yeah, because fewer people will be buying the iPhone, turned off by its Android-like turnover rate."

 

I was saying that a faster product cycle would benefit the amount of iPhones beeing sold and this could counter act a smaller margin. Android devices are having a faster refresh rate and people get the latest speed and features quicker. And Android devices are having a faster growth rate than iPhones (patially due to cheaper prices but they also surpas iPhones features quicker in the shorter refresh cycle).

 

I would not buy an iPhone once it has been out for 6 month. I would wait 6 (or more) month till the next refresh. I have skipped iPhone purchases due to this 12 - 15 month cycle and would have bought at least two extra iPhones if the cycles would have been shorter. My carrier allows me to get a subsdidized new phone every 18 month.

post #30 of 31
Originally Posted by BandiTT View Post
I was saying that a faster product cycle would benefit the amount of iPhones beeing sold…

 

But why do you think that, is all? The iPhone is the best selling phone on the market during its entire run. All four quarters. It doesn't need any help or doubling up! It's already hard enough to make enough iPhones to meet demand as it is. 


PLUS you get the completely beyond help imbeciles that will whine about the case "not changing" twice as often. Why would Apple want that? 


Android devices are having a faster refresh rate and people get the latest speed and features quicker. 

 

No! They don't! They rarely get ANY features AT ALL beyond what shipped with the device. Do you really think people are buying new phones every six months? Or every three, if you're looking at Android? It doesn't happen. Do you really want Apple to compress software support lifetimes? 


…they also surpass iPhones features quicker in the shorter refresh cycle).

 

Except they don't… I don't understand why you would say this.


I would not buy an iPhone once it has been out for 6 month. I would wait 6 (or more) month till the next refresh.

 

You're in the crazy small minority. This makes zero sense. And spin it around, if you're fine with waiting six months for a new phone, that means you're not buying an Android phone now, you're buying the model TWO MODELS later. 


…would have bought at least two extra iPhones if the cycles would have been shorter.

 

And received what? You wouldn't have gotten anything different. What makes you think they canmuch less would want to—speed up their processor build cycles? What else is there to update? They're not just going to keep raising the megapixelage of the camera. That's basically all that can be done. Cut the refresh rate in half and NAND chips don't have that time to come down in price, so capacities keep staying the same. 

 

And again, aside from the case whiners, you'd then get the people whining about how even less INSIDE the phone has changed. Would anyone really want that to happen?

post #31 of 31
Quote:
Originally Posted by herbapou View Post

Wall street decided to hate Apple for no reason, stock is trading at 14 PE and is near its 200 DMA.  Unless you think Apple is really Doom my recommendation is to buy here and if we get below 580, back up the truck and load with everything you can.

 

Apple is forecasting 52 billions in sales, and 11.7 EPS.   If for whatever reason they get better margins or they buy back shares (like they are suppose to do) the EPS guidance is going to be blown out of the water.  I think Apple lowball EPS in an attempt to keep analyst to over-estimate.

 

That being said, Apple is experiencing decelerating growth, look at the number for the past 3 years:

 

PREVIOUS EARNINGS:

2010 Q1 (Ending 12/31/10) Guidance = $4.80; Actual = $6.43;(Beat = 40.0%)

2011 Q2 (Ending 3/31/11) Guidance = $4.90; Actual = $6.40; (Beat = 30.6%)

2011 Q3 (Ending 6/31/11) Guidance = $5.07; Actual = $7.79; (Beat = 53.6%)

2011 Q4 (Ending 9/24/11) Guidance = $5.50; Actual = $7.05 (Beat = 28.2%)

2012 Q1 (Ending 12/31/11) Guidance = $9.30; Actual = $13.87 (Beat = 49.1%)

2012 Q2 (Ending 3/31/12) Guidance = $8.50; Actual = $12.30 (Beat = 44.7%)

2012 Q3 (Ending 6/30/12) Guidance = $8.68; Actual = $9.32 (Beat = 7.4%)

2012 Q4 (Ending 9/29/12) Guidance = $7.65; Actual = $8.67 (Beat = 13.3%)

 

Normaly a stock with growth like Apple should trade at a multiple of 20 or more.  When a company is seeing decelarating growth, its normal to have its multiple compress. But the problem is Apple was already trading at a very low multiple of 15, so PE compression put the stock in defensive value stock territory.  And Apple is trading below the averave value stock. That makes Apple a very very cheap stock.

 

You need to compare the "Actual" from quarter to quarter, not the "Beat"... From where I'm sitting, it looks like Apple is growing, not yet slowing.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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