“Apple’s gross margin is subject to intense scrutiny, as it should be, when it announces its quarterly results,” Chuck Jones writes for Seeking Alpha. “With the iPhone generating over 50% of the company’s total revenue each new iPhone is critical not just for the revenue it generates but its profitability since its margins are higher than Apple’s other hardware products.”
“It is worthwhile to analyze what percentage warranty accruals are of revenue and the cyclical nature of them pre and post launch of new iPhones as they can have a tremendous impact on EPS,” Jones writes. “While warranty accruals are impacted by other products, namely iPads, the iPhone’s costs probably overwhelm Apple’s other products.”
“Apple’s true gross margin, when you remove warranty accruals, has been more stable than its reported results,” Jones writes. “Apple’s reported gross margins over the past eight quarters have been between 36.9% and 40.0%.”
“Warranty accruals have ranged from 1.6% to 3.7% of revenue,” Jones writes. “Over the past eight quarters Apple’s gross margin ex-warranty accruals have been between 39.0% and 42.0%.”
Much more in the full article here.