“At least three brokerages cut their price targets on Apple Inc by up to $50 a share after the iPhone maker surprised analysts by forecasting lower gross margins for the current quarter,” Supantha Mukherjee reports for Reuters. “For the December quarter, Apple forecast revenue of $52 billion, below estimates of $55 billion, according to Thomson Reuters I/B/E/S. It expects margins of 36 percent, far lower than analysts’ expectations of 43 percent.”
“Apple’s forecast decline in gross margin, even assuming it was deliberately aiming low, still pointed to an unusual decline, Evercore Partners analysts Rob Cihra and Edison Yu said in a research note. Evercore cut its price target on the stock to $775 from $800,” Mukherjee reports. “Nomura Equity Research said it expected production costs to rise in the current quarter, after Apple redesigned so many of its products at once. ‘The iPhone 5, iPod Touch, iPod nano, iPad mini and iMac all feature new form factors and our checks with the supply chain indicate that many of these are very complex to manufacture and are likely resulting in reduced production efficiencies,’ Nomura analysts said in a note as they lowered their price target to $660 from $710.”
Mukherjee reports, “Apple said it expects 80 percent of revenue in the current quarter to come from new products but did not increase the product prices to offset higher costs and maintain its margins. Analysts, however, expect gross margins to recover by June next year as rising volumes trim manufacturing and component costs. When the iPhone 4 was launched, Apple suffered a 480 basis point decline in corporate gross margins but it recovered entirely within two quarters, Raymond James analyst Tavis McCourt said. He cut his price target on the stock by $30 to $700.”
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MacDailyNews Take: New products cost more to make initially and Apple expects 80% of revenue to come from brand new products, hence the company’s margin guidance. Nothing could be less mysterious. There’s no reason to cut 12-month price targets on Apple Inc.
Apple beats Street on revenue, misses on EPS – October 25, 2012