iPhone 5s launch expected to boost Apple's gross margins to nearly 40%

Posted:
in AAPL Investors edited January 2014
Historically, 'S' versions of Apple's iPhone lineup have led to stronger margins than full-fledged redesigns. That's why one analyst expects the newly released iPhone 5s to push Apple's gross margins toward 40 percent in the coming quarters.

Margins


Maynard Um of Wells Fargo Securities expects that December corporate gross margins for Apple could reach 39.6 percent. And in the following March quarter, he expects decreases in warranty accruals to potentially push margins as high as 40 percent.

If his prediction proves accurate, it would be the first time since September of 2012 that Apple's company-wide margins exceeded 40 percent. Gross margin took a hit last fall after the launch of the iPhone 5, with a complete product redesign, as well as the competitively priced iPad mini.

Apple's margins have shown a clear trend of dipping after the launches of the iPhone 3G, iPhone 4, and iPhone 5. But they have also increased following the debuts of the iPhone 3GS and iPhone 4S.

The company's highest point came in the second fiscal quarter of 2012, following the debut of the iPhone 4S, when margins peaked at 47.4 percent. Since then, they have fallen to 36.9 percent in the third quarter of fiscal 2013.

If Apple can increase its margins north of 40 percent once again, Um believes it would help to dispel fears among investors about high-end smartphone commoditization. The analyst also believes Apple has plenty of room to expand its iPhone lineup, as it currently has just 280 carrier partners, compared to 650 for BlackBerry at its peak.

Wells fargo has reiterated its "outperform" rating for AAPL stock, with a valuation range of between $525 and $575 per share.
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Comments

  • Reply 1 of 81
    formosaformosa Posts: 261member

    There appears to be no general consensus among the analysts on what Apple is doing or where it is going. So when in doubt, they are negative.

     

    This implies that Apple is still doing a good job at secrecy (from the supply chain to product development).

  • Reply 2 of 81
    poksipoksi Posts: 481member
    AI, filling the gap again while waiting for some relevant news, are we?
  • Reply 3 of 81
    pmzpmz Posts: 3,433member

    Only at Apple. If another company spent $400 million on IP for one feature of an "s" revision, they'd be sunk.

     

    At Apple, its water under the bridge, and we're talking increased gross margins. 

     

    I was concerned that Touch ID was so expensive for Apple to get going that they'd be hesitant to roll it out into cheaper iOS products (like all of the iPads) until they recouped some of that loss....but we haven't heard anything to that effect....just the opposite.

  • Reply 4 of 81
    froodfrood Posts: 771member

    This guy seems to be more accurate than most, but the takeaway I get from any article where he is involved boils down to this:

     

    'Um' = Best.  Name.  Ever.  For an analyst.

  • Reply 5 of 81
    That sounds reasonable
  • Reply 6 of 81
    jamesmacjamesmac Posts: 115member
    This analysis seems to have been done factoring in only the iPhone. The trend in tablets appears to be decreasing ASPs, and Apple seems particularly vulnerable because they're selling more and more iPad minis versus some of the most expensive tablets in the industry. Until the details, including pricing, are made available for the next generation of iPads, I wouldn't trust these numbers.
  • Reply 7 of 81
    jragostajragosta Posts: 10,473member
    Historically, 'S' versions of Apple's iPhone lineup have led to stronger margins than full-fledged redesigns. That's why one analyst expects the newly released iPhone 5s to push Apple's gross margins toward 40 percent in the coming quarters.

    Let's see. Apple says it will be at the high end of the 36-37% range. Some analyst who doesn't have access to Apple's financials says it will be 40%.

    Hmmm... who to believe? :smokey:
  • Reply 8 of 81
    asdasdasdasd Posts: 5,233member
    sog35 wrote: »
    Increased margins was a HUGE part in the decision to bring out the 5C.  Very smart move.  Last year the 5 was selling great but the 4/4S combined were capturing almost 45% of the iPhone sales.  That hurt margins big time because both are still very expensive to make.  With the 5C Apple is able to offer a 'new' phone and protect its margins.  If Apple kept their same strategy (using 1 and 2 year old phones) the $100 cheaper 5 would kill their margins big time.  The 5 would be about the same cost to produce but would sell at $100 less.  I think the main lesson Apple learned last year is that many people are willing to buy a 1 year old phone that looks similar as the flagship (4S) but with lower specs for $100 cheaper.  Now the mid-tier phone looks very different from the flagship.  This will cause more people to pay the extra $100.  Very smart by Apple.

    If you look at units sales for iPhone/iPad they were up significantly in 2012.  Yet their profits were close to flat.  Margins had to increase.  Now I'm wondering how will Apple increase margins with the iPads?  Will they make an iPadMini Plastic without Retina and keep it at $329 and then an iPadMini Retina at $399?  Will they introduce a bigger iPad starting at $599?

    Another option is lower margins compensated for by higher sales.
  • Reply 9 of 81
    Quote:

    Originally Posted by sog35 View Post

     

    Increased margins was a HUGE part in the decision to bring out the 5C.


     

    I asked Tim about this last week and he said that is bullshit. The decision was made because Jony has always wanted to see what he could design with plastic.

  • Reply 10 of 81
    jamesmacjamesmac Posts: 115member
    Quote:
    Originally Posted by sog35 View Post

     

     

    isn't that Android's strategy? 


     

    Apart from the fact that Android is an operating system and can't really have it's own strategy, I suppose the answer to your question is a resounding no; that's a very simplistic view of what's happening.

     

    Google's strategy is to spread Android far and wide, lock people into its ecosystem and profit, primarily, but not exclusively, from advertising to those customers.  

     

    Various OEMs have very different strategies and some are going to fail, HTC for example, is looking very weak right now.  Others have hit upon a winning formula.  Samsung, is flooding the global market with a broad range of phones (and other devices) at various price points and are using what might be called a shotgun approach.  They're also very good at imitating quickly, something I know most folks here rightly get annoyed about.  That being said, their approach is working very well not only in the west, but also China and India; markets that others, Apple included, are having a great deal of difficulty in penetrating.  A novel approach is being taken by Xiaomi, who sell good quality hardware at cost and make their profits off post sale services and product sales (somewhat like Amazon).  There are a few OEMs who compete almost entirely on price, but they're not well known here; companies like Coolpad in China or Micromax in India, but we're talking about phones as low as $50 unsubsidized!

     

    The point being that each OEM has a different strategy, and Apple has to factor in all these competitors in each market they enter.  I'd say, so far, they're doing pretty well. 

  • Reply 11 of 81
    Quote:

    Originally Posted by sog35 View Post

     

     

    Chasing sales and low margins is a losers game.  Every single phone manufacter that sells cheap phones is losing money except for Samsung.  And Samsung is on a downward path because they have barriers that won't allow them to copy the 5S (fingerprint, 64bit, iOS7).  Just watch Samsung's mobile division go into the toilet the next 12 months as Chinese brands will kill them in Asia.


     

    Yup... they're just killing Samsung...

     

    http://business.financialpost.com/2013/10/04/samsung-electronics-cos-wide-array-of-smartphones-drives-record-profit-as-htc-stumbles/?__lsa=0daa-a1c4

  • Reply 12 of 81
    jamesmacjamesmac Posts: 115member
    Quote:
    Originally Posted by sog35 View Post

     

     

    Chasing sales and low margins is a losers game.  Every single phone manufacter that sells cheap phones is losing money except for Samsung.  And Samsung is on a downward path because they have barriers that won't allow them to copy the 5S (fingerprint, 64bit, iOS7).  Just watch Samsung's mobile division go into the toilet the next 12 months as Chinese brands will kill them in Asia.


     

    Sony just reported a small operating profit in their mobile division and Xiaomi has just turned profitable, so there are others.  But I take your point that this is a hard market to make money in as inevitably we move towards commoditization.  

     

    I don't agree with your latter statement.  Of course IOS is unique to Apple, but a 64 bit processor isn't that meaningful to the masses, and for Samsung, one of the worlds largest fabs, to license this from ARM and produce it is not particularly difficult.  The fingerprint reader is widely available on Lenovo laptops and again isn't particularly hard to replicate.  I'd suggest that curved screens are going to be one of the next innovations and Samsung and LG are likely ahead of others.

  • Reply 13 of 81
    Quote:
    Originally Posted by island hermit View Post

     
    Quote:
    Originally Posted by sog35 View Post

     

     

    Chasing sales and low margins is a losers game.  Every single phone manufacter that sells cheap phones is losing money except for Samsung.  And Samsung is on a downward path because they have barriers that won't allow them to copy the 5S (fingerprint, 64bit, iOS7).  Just watch Samsung's mobile division go into the toilet the next 12 months as Chinese brands will kill them in Asia.


     

    Yup... they're just killing Samsung...

     

    http://business.financialpost.com/2013/10/04/samsung-electronics-cos-wide-array-of-smartphones-drives-record-profit-as-htc-stumbles/?__lsa=0daa-a1c4


     

    Maybe you can't read, and that's a pity, but the guy is right.

    Samsung will have an awesome quarter thanks to other businesses. Their smartphone growth is close to being over, and that's ok.

     

    Anyway, if Apple wants more profits and revenue, they need another iPhone line with a bigger screen, but doing 10 billions per quarter is good too. A bigger iPhone, a bigger iPad, kill the cMBP, make a retina 17" and that's an awesome start to be even more profitable and have more revenue.

     

    But the time to get to other areas of interest is coming closer (if they want growth).

  • Reply 14 of 81
    Quote:

    Originally Posted by sog35 View Post

     
    Quote:
    Originally Posted by pedromartins View Post

     

     

    Maybe you can't read, and that's a pity, but the guy is right.

    Samsung will have an awesome quarter thanks to other businesses. Their smartphone growth is close to being over, and that's ok.


     

    for some reason Islandhermit has made it his personal goal in life to contradict every thing i say here.  i have no idea why.  I think its because i called  him out for bashing Apple for not bring out a $250 phone.

     

    its true samsung is growing profits....... in chip manufactuering thanks to Apple.  But their mobile division is struggling and losing traction to Chinese manufacters.


     

    Yes sometimes the guy goes berserk but he usually has something interesting to say. He contributes more for some discussions than, let's say, me.

  • Reply 15 of 81
    Quote:

    Originally Posted by sog35 View Post

     

     

    for some reason Islandhermit has made it his personal goal in life to contradict every thing i say here.  i have no idea why.  I think its because i called  him out for bashing Apple for not bring out a $250 phone.

     

    its true samsung is growing profits....... in chip manufactuering thanks to Apple.  But their mobile division is struggling and losing traction to Chinese manufacters.


     

    Quote:
    Originally Posted by sog35 View Post

     

     

    for some reason Islandhermit has made it his personal goal in life to contradict every thing i say here.  i have no idea why.  I think its because i called  him out for bashing Apple for not bring out a $250 phone.

     

    its true samsung is growing profits....... in chip manufactuering thanks to Apple.  But their mobile division is struggling and losing traction to Chinese manufacters.


     

    Can you please point me towards the data you're referencing?  Which Chinese manufacters [sic] are you referring to?

  • Reply 16 of 81
    Quote:

    Originally Posted by sog35 View Post

     

     

    small operating profits dont cut it for Apple.  No one is making decent profits except Samsung/Apple.

     

    64-bit for Samsung will be difficult unless Android adapts 64-bit.  A 64-bit processor with a 32-bit OS is useless.  I don't think Google is in any rush to move to 64-bit with Android.  If producing a 64-bit chipset was so easy why didn't anyone do it before Apple?

     

    Have you ever tried the Lenovo fingerprint readers?  they suck.  They are slow and lock out users far to often. 


     

    Agreed, and I'm sure Sony would agree with you too!  They're working on it.

     

    Apparently, Google is working on it and some are even speculating that Kit Kat may be 64 bit.  You won't like my answer, but I suspect that no one else introduced 64 bit support because it's not really necessary, and it's a bit of a gimmick.  ARMV8 was more important, and Apple did very well in introducing this first and they deserve kudos for getting it out first.

     

    Yes, I agree, Lenovo fingerprint readers don't work that well.  If the market wants fingerprint readers, you can bet that Samsung and everyone else will have them.

  • Reply 17 of 81
    asdasdasdasd Posts: 5,233member
    sog35 wrote: »
    for some reason Islandhermit has made it his personal goal in life to contradict every thing i say here.  i have no idea why.  I think its because i called  him out for bashing Apple for not bring out a $250 phone.

    its true samsung is growing profits....... in chip manufactuering thanks to Apple.  But their mobile division is struggling and losing traction to Chinese manufacters.

    Are people disagreeing with you on the Internet, diddums.

    He's a more interesting poster than most "Apple is always right" drones most of whom don't have any skin - stock - in the game. I have no idea why non stock holders obsess about margin, but they do.
  • Reply 18 of 81
    Quote:

    Originally Posted by JamesMac View Post

     

     

    Agreed, and I'm sure Sony would agree with you too!  They're working on it.

     

    Apparently, Google is working on it and some are even speculating that Kit Kat may be 64 bit.  You won't like my answer, but I suspect that no one else introduced 64 bit support because it's not really necessary, and it's a bit of a gimmick.  ARMV8 was more important, and Apple did very well in introducing this first and they deserve kudos for getting it out first.

     

    Yes, I agree, Lenovo fingerprint readers don't work that well.  If the market wants fingerprint readers, you can bet that Samsung and everyone else will have them.


    Isn't armv8 important because it is 64 bit?

  • Reply 19 of 81
    jragostajragosta Posts: 10,473member
    jamesmac wrote: »
    Apparently, Google is working on it and some are even speculating that Kit Kat may be 64 bit.  You won't like my answer, but I suspect that no one else introduced 64 bit support because it's not really necessary, and it's a bit of a gimmick.  ARMV8 was more important, and Apple did very well in introducing this first and they deserve kudos for getting it out first.



    Yeah, it's a gimmick. A gimmick that allows Apple's A7 to outperform competitior's products with twice as many cores and 70% higher clock speeds.

    Don't count on Kit Kat being 64 bit. If it were going to be, we'd have heard about it already. Even if it were, the fragmented Android infrastructure and lack of quality development tools would ensure that it would be years before most apps get converted, anyway.
  • Reply 20 of 81
    Quote:

    Originally Posted by sog35 View Post

     

     

    for some reason Islandhermit has made it his personal goal in life to contradict every thing i say here.  i have no idea why.  I think its because i called  him out for bashing Apple for not bring out a $250 phone.

     

    its true samsung is growing profits....... in chip manufactuering thanks to Apple.  But their mobile division is struggling and losing traction to Chinese manufacters.


     

    Their mobile division is struggling? Read the report. The mobile division has increased its operating profit.

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