“Apple’s FY09 gross margin should well-exceed management’s guidance of 30%. There are multiple factors that will support FY09 gross margins. 1) As iPhone’s revenue contribution to total company sales increases, overall gross margins will rise since the iPhone carries a very high GM. 2) There will be a more favorable component price environment created by plunging commodity and energy prices. 3) As production volume rises for the iPhone and MacBooks, scale effects and cost efficiencies will benefit drive down product costs. 4) Higher revenues supply leverage by spreading fixed costs across a higher revenue base,” Turley Muller writes for Financial Alchemist.
“Apple’s guidance is way too conservative; yet considering the economic landscape, management is exercising prudence. This cushion should help Apple exceed earnings expectations even if the economy adversely affects its business. With gross margin expectations so low, Apple’s revenue growth could turn out worse than expected and still match/beat EPS estimates. Alternatively, Apple could use the gross margin cushion for lowering prices to boost demand if warranted,” Muller writes.
“FY09 gross margins will come in way above management’s guidance of 30%. The iPhone, with it’s staggering margins, will become a larger contributer to overall revenue, thus it will drive GM higher. Management is being excessively conservative, and the ultra-low GM guidance provides a cushion in the event that Apple’s business considerably deteriorates. A more favorable commodity and component price environment will also lend support to margins. As management stated, costs from the iPod and MacBook transition should also decreases from volume manufacturing and cost engineering as the firm moves along the cost curve. AAPL shares are pricing in lower margins as analysts are looking for FY09 EPS to be flat versus FY08. Even in a tough economic environment, I foresee better results,” Muller writes.
Much more in the full article here.
Starting with the lower of Q3 & Q4 Gross Margin percents (which I applied to my Q1/09 Gross Revenue), I deducted $100 for each MacBook/MacBook Pro I foresee Apple selling during Q1/09. This is to account for the higher cost of the aluminum case than the previously used plastic case. The $100 figure is purely arbitrary.
The adjusted Gross Margin represents 33.60% of Revenue (hardly the 30% that Apple guided). I think this number will prove much closer to actual results, than will Apple’s guidance.
Gross expectations too low?
That’s gross…….
Yep, Apple’s GM guidance makes no sense. Apple released their non-GAAP figures a couple weeks ago, and showed that the iPhone gross margins are 47.8%. As the iPhone revenues become a larger and larger part of Apple’s total revenues, those iPhones will drive up Apple’s Gross Margins.
At the same time, Oppenheimer is guiding down GMs to between 30 and 31%, from its current history of around 33%. This seems nonsensical, if iPhones are becoming a greater part of revenue, with 47.8% GMs, then how could GMs be falling from 33+% to between 30 and 31%?
Of course, that could be due to the unibody. I calculated that the unibody and LED screens might cost Apple $800M more in mfring costs, on 10M laptops in 09, or about $80 each. Still, that should not bring margins down, unless the unibody costs are far greater than anyone imagined.
Personally, I think Oppenheimer needs to be fired. He’s incompetent. The whole reasoning for deferred iPhone revenues is gone. Using deferred revenues, has hurt Apple’s shareprice. he needs to go.
If Apple lower iPhone prices to remove any price umbrella, and then reduce Mac prices in an effort to stimulate demand in a recessionary environment, on top of increased manufacturing costs for the aluminum unibodies, then perhaps the guidance is not misplaced.
What do you think?
Apple’s guidance is way too conservative; yet considering the economic landscape, management is exercising prudence. This cushion should help Apple exceed earnings expectations even if the economy adversely affects its business. With gross margin expectations so low, Apple’s revenue growth could turn out worse than expected and still match/beat EPS estimates. Alternatively, Apple could use the gross margin cushion for lowering prices to boost demand if warranted,” Muller writes.
Well Duh!!! That’s the point, dipwad.
All you businessmen run your own companies and let Mr. Jobs run Apple any way he chooses.
Add this. You’re beginning to sound like analysts.
Margins could easily go down if Apple decides to drop the price to be more competitive. Apple typically gouge the first adopter and then slowly reduce the price after recouping their R&D;costs and the novelty has worn off.
The costs will be falling and iPhone will be contributing more sales driving margins up, even with higher initial cost for the MacBooks and iPod price cuts, I don’t think that will knock margins down to where management is guiding. We are entering a deflationary environment, especially upstream at the raw materials level. Apple would have to cut prices significantly to see margins fall to 30%. And if Apple did, I would expect the increase in demand would be quite robust, thus earnings will be much higher than expected due to top-line growth