Morgan Stanley: Apple’s 40+% gross margins as sustainable for foreseeable future

Morgan Stanley analyst Katy Huberty sees Apple’s 40+% gross margins as sustainable for foreseeable future as she measures the FX headwinds and warranty accrual tailwinds behind the strong 42.5% gross margin that Apple reported Wednesday.

Morgan Stanley: Apple's 40+% gross margins as sustainable for foreseeable future. Image: Apple Park in Cupertino, California
Apple Park in Cupertino, California

Philip Elmer-DeWitt for Apple 3.0:

From a note to clients that landed on my desktop Friday:

March quarter gross margin expanded ~380bps Y/Y after normalizing for warranty accruals and FX hedges. March quarter normalized gross margin of 42.3% was below reported gross margin of 42.5% after backing out a 65bp headwind from FX hedges and a 85bp tailwind from lower warranty accruals…

Strong normalized gross margin expansion after adjusting for warranty accruals and FX hedges suggests that 40%+ gross margins are sustainable which is reflected in our updated forecasts published after earnings this week. As we discussed in our earnings note, we believe that increased in-sourcing of components, higher services mix, and mix uplift from trade-in programs contribute to structurally higher margins in the 40%+ range long-term.

MacDailyNews Note: Huberty maintains Morgan Stanley’s “Overweigh” rating on Apple and reiterated her $161 price target.

Strong gross margins afford strong R&D.


  1. What analysts don’t understand is that Apple does not follow rational evaluation. They do not take into account the Apple Bitches.

    I can dis Tim Cook all I want. I can complain all I want. When that new iPad or MacBook Pro ships… my hand shakes even as it glides across the keyboard placing the order. I am an Apple bitch. A member of a group of weak pathetic individuals who could easily move to another OS, but have been inculcated and indoctrinated for so long by Apple that there is no hope of breaking free.

    And in this world where I find so little to smile about in general, I will have the biggest grin on my face when that iPad arrives. I can’t wait to see if I can load some 100MB spreadsheets, etc. etc. What new apps will be taking advantage of the 16GB of RAM and so on.

    The real question as far as Apple investors is concerned is… are we Apple bitches dying off?

    1. If only there was a better alternative to Apple than the unthinkable Google and Microsoft. Their software QC has been going downhill for years but the total package is still a no-brainer, not to mention at least a nod towards user privacy in the personal data rape world we live in.

    1. Actually, most of the tech sector is down. The major exception is Amazon, which stands to gain if the EU forces Apple to allow Kindle Book sales through the app.

    2. If Apple’s share price stays low, then Apple can take greater advantage of their stock buyback money and supposedly that’s good for shareholders. So, in a perverse way, these losses may actually be a reward for long-term shareholders.

  2. I continue to see articles saying how Apple’s current numbers are not sustainable and that’s one of the reasons why Apple is down. It has much to do with investors’ fears or lack of confidence in Tim Cook and Apple. There was also Tim Cook telling everyone in earshot that chip shortages will definitely hurt Mac and iPad sales. I’m sure that info sent potential investors running for the hills and who can blame them. There are plenty of other stocks for investors to make money from.

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