Apple’s gross margin could improve with ‘iPhone 5S


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News @Sigmasolve “Apple’s gross margin could improve with ‘iPhone 5S’ “

Apple’s gross margin could improve with ‘iPhone 5S’

Apple’s gross margins are down year over year, and the company’s share price has dropped more than 35 percent in the past six months alone.

A dip in gross margin shows a drop in overall profitability, and this is something Apple desperately needs to claw back.

Morgan Stanley analyst Katy Huberty said yesterday in a note to investors that while the financial firm keeps its $630 price target—Apple is trading at almost $200 a share lower than that at $442 per share on the Nasdaq this morning—she believes Apple can rebound again with the iPhone 5.

Why exactly? By digging through the company’s 10-Q filing with the U.S. Securities and Exchange Commission, Huberty attempted to determine whether Apple’s recent gross margin decline is a temporary hiccup, or part of a wider structural problem.

It’s not the latter, she said, but hinted that the forthcoming “iPhone 5S”—which shouldn’t be a valid indicator of what Apple will actually call the next-generation smartphone—or rather its manufacturing process could help the company bounce back.

Apple’s the company’s gross margin was 38.6 percent compared to 44.7 percent on the same quarter a year ago. If Apple keeps on the most part the same design as the recent iPhone 5, particularly the larger display and thinner design, then Apple can recoup some of its lost profit and regain traction on the trading floor.

From the 10-Q:

The lower gross margin expected in 2013 is largely due to anticipation of a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers and anticipated component cost and other cost increases.

In a nutshell, Apple spent a lot on new manufacturing equipment to develop the iPhone 5 and this dinged the company’s margins. It does also hint that new products might be on the way this year, but at this stage it would be beyond premature to even begin to speculate what these could be.


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