“In real estate it’s ‘location, location location,’ but Apple has always been evaluated on ‘margin, margin, margin.’ Apple has met or exceeded its margin guidance for three consecutive quarters but analysts have never been content,” Richard Saintvilus writes for TheStreet.
“Apple will report fiscal second-quarter results Wednesday, so to what extent will Apple’s margins play a role in the stock’s direction? We know when it comes to Apple’s unit sales for iPhones and iPads the Street will be obsessed over quarter-to-quarter average selling price (ASP) figures and try to dissect what they mean in terms of margins and market share,” Saintvilus writes. “The fact that Apple still has margins hovering around 37%-38% is a testament to the quality of the company’s products and management’s ability to market to those who can see the value in those products.”
“There is a growing belief that Apple’s gross margins could see a decline with the new iPhone 6. But I wouldn’t get carried away. According to reports, Apple will release two iPhones in its upcoming product cycle. One will have 4.7-inch screen while the other will sport a 5.5-inch screen; this bigger phone is where Apple plans to maintain its hefty margins,” Saintvilus writes. “Also, investors shouldn’t discount the viability of the iPhone 4S and management’s ability to prolong that life cycle for another year or even two. It seems inconceivable. But consider the 4S still ranks at the fifth-best-selling phone around the world. So keeping the 4S around would benefit Apple more in the long term from a gross margin perspective as opposed to maintaing the iPhone 5C at the low end.”
Read more in the full article here.