Apple margin concerns fade, focus shifts to iPhone launch

Wed Jul 23, 2014 10:47am EDT
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(Reuters) - A rise in margins has raised hopes that Apple Inc may be able to hold the line on pricing ahead of the launch of new iPhones later this year.

Apple's shares rose 3.3 percent to a 22-month high of $97.88 on the Nasdaq on Wednesday.

At least six brokerages raised their price targets on the stock by as much as $12 to a high of $123.

Apple's gross margin rose to 39.4 percent in the third quarter from 36.9 percent a year earlier, and the company forecast current-quarter margins of 37-38 percent.

iPhone sales slow before a new launch, usually in September, as potential buyers hold off purchases.

"With (gross margins) stabilizing (year-on-year) and core demand trends solid, we think investors will want to own Apple stock (going) into bigger-screen iPhone 6 and ecosystem-expanding iWatch/iBand launches," Evercore Group analysts wrote in a note.

Apple forecast current-quarter revenue of $37 billion-$40 billion, lower than the average analyst estimate of $40.44 billion, according to Thomson Reuters I/B/E/S.

Apple did well in a seasonally soft June quarter and gave a "good enough" outlook, but investors are focusing more on new product launches, the China Mobile Ltd deal and a push into the enterprise market with IBM Corp, Cantor Fitzgerald analyst Brian White wrote in a note.

Apple launched iPhone on China Mobile's network in January, which boosted its June quarter revenue by 28 percent in greater China.   Continued...

The gold colored version of the new iPhone 5S is seen after Apple Inc's media event in Cupertino, California September 10, 2013. REUTERS/Stephen Lam