Apple's weak margin outlook surprises analysts

Fri Oct 26, 2012 7:16am EDT
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(Reuters) - At least three brokerages cut their price targets on Apple Inc by up to $50 a share after the iPhone maker surprised analysts by forecasting lower gross margins for the current quarter.

Apple shares edged lower 0.1 percent to $608.85 in premarket trading.

For the December quarter, Apple forecast revenue of $52 billion, below estimates of $55 billion, according to Thomson Reuters I/B/E/S. It expects margins of 36 percent, far lower than analysts' expectations of 43 percent.

Analysts focused on the decline in margins and played down the significance of a fall in iPad sales in the last quarter, as users waited for the iPad mini, and they did not expect this to continue.

Apple's forecast decline in gross margin, even assuming it was deliberately aiming low, still pointed to an unusual decline, Evercore Partners analysts Rob Cihra and Edison Yu said in a research note. Evercore cut its price target on the stock to $775 from $800.

Nomura Equity Research said it expected production costs to rise in the current quarter, after Apple redesigned so many of its products at once.

"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 analysts said in a note as they lowered their price target to $660 from $710.

Apple heads into the current quarter after refreshing almost all of its product lines, including introducing a lower-priced 7.9-inch "iPad mini" and an upgraded fourth-generation full-sized iPad.

Apple said it expects 80 percent of revenue in the current quarter to come from new products but did not increase the product prices to offset higher costs and maintain its margins.   Continued...

Apple senior vice president of worldwide marketing Philip Schiller introduces the new iPad mini during an Apple event in San Jose, California in this October 23, 2012 file photo. REUTERS/Robert Galbraith/Files