“It’s no secret that products for Apple Inc. have historically come with higher price tags than those of its rivals, as consumers have shown a willingness to pay a premium for popular products such as Macintosh computers, iPods and the iPhone,” Rex Crum reports for MarketWatch. “However, recent moves by Apple have made some analysts worry that the company’s profit margins – which are also well ahead of its rivals – may begin to shrink.”
“‘Apple is playing the [price] elasticity curve on both products,’ wrote Keith Bachman, of BMO Capital Markets in a June 9 report,” Crum reports. “Bachman said he believes the moves will help to increase Apple’s market size for both notebooks and smart phones, but the company will see ‘some modest margin pressure’ over the next several months.”
“Richard Gardner, of Citgroup, said that the price cuts, along with back-to-school promotions ‘should push down margins in coming quarters’ after reaching a likely peak during the first quarter of the year,” Crum reports.
“The company reported gross margins of about 34% for its last two fiscal years, while Dell’s margins have come in between 18%-19% for the same period,” Crum reports. “Apple can command such margins because its products – especially its Mac computer line, are widely seen as higher in quality than many PC counterparts.”
Crum reports, “The company has estimated that third-quarter margins will come in at 33%, compared to the 34.8% reported in the year-ago period. Recent history suggests that Apple will probably top its forecasts, but some analysts say the company may have to face pressure on its margins and sales, even in its most-productive business periods.”
Crum reports, “Gene Munster, of Piper Jaffray, admitted to being surprised by what he called Apple’s “aggressive reductions” in MacBook Pro prices, but that the new prices should produce enough sales volume for Apple to at least meet his estimates for sales of 2.2 million Macs in Apple’s current quarter, and 2.4 million Macs in the quarter that ends in September.”
More in the full article here.