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New Apple margin forecast disappoints analysts

Looks like Apple is not that impressive last quarter. Three reported brokerages lowered their price targets on Apple Inc by as high as $50 per share following a surprising weaker gross margins for the current quarter.

The iPhone maker revealed a lower revenue forecast for this quarter translating to $52 billion only. Market analysts are expecting the most desirable company will be hitting $55 billon this quarter.  Thomson Reuters I/B/E/S revealed Apple is expecting to reach 36 percent in margins, well below the analysts’ 43 percent.

Analysts did not factor in the falling iPad sales and focused on decline in margins as customers anticipate for the iPad Mini. They did not expect that the trend from the previous quarter would continue.

The expectation of a lower gross margin by Apple, even if intentionally done, is still an unusual decline according to analysts from Evercore Partners, Rob Cihra and Edison Yu. The research firm decreased the stock price target from$800 to $775.

Another firm, Nomura Equity Research said that Apple’s gross margin decline can be attributed to the rise in the production cost following the company’s several product redesigns.

Nomura analysts said: “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 also lowered its price target from $710 to $660.

Apple recently initiated steps to give its products new looks while currently producing its latest upgrade to its iPad series, the 7.9 inch “iPad mini.

The Cupertino-based Apple says that 80 percent of its revenue for the current quarter will be coming from its latest products. It did not increase its product prices to make up for the higher production costs and to maintain its gross margins.

Analysts expect that Apple’s margins will show a positive trend next year, during the June quarter, as component and manufacturing costs continue to rise at the current quarter.

Historically, the company’s gross margins decreased after the iPhone 4 was released, although it did recover from a 480 basis point decline after 2 quarters, said Tavis McCourt of Raymond James.

Apple had also suffered shortages of new units as its production lines could not cope up with the demand for the new iPhone 5 last September. Some regions had to contend with a three-week waiting time due to the said shortage.

Just this week, Apple’s partner AT&T noted that its low subscriber growth is attributed to Apple’s slow delivery of iPhone 5, showing the wireless carrier’s dependence on Apple.

Apple CEO, Tim Cook, blamed supply chain issues for the delays and iPhone 5 shortages.

Apple’s biggest rival in the smartphone sphere, Samsung Electronics Co, posted a record fourth straight quarterly profit of $7.4 billion highlighting the strong performance of its Galaxy phone series.

Samsung sold about 56.3 million phones during the third quarter based on a report from research company IDC. Samsung now holds 31.3 percent of the global market share for smartphones–twice higher than what Apple enjoys right now. Apple has reportedly sold about 26.9 million phones during the same quarter.

Analysts are optimistic about the December quarter for Apple and next year despite the company’s poor showing during the third quarter.

source: reuters