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.
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.