Predictions Point Towards Apple Absorbing Quality Control Costs for iPhone 5
A few days ahead of Apple’s quarterly earnings report, analyst Shaw Wu of Sterne Agee says he expects “vintage conservative” guidance from Apple ahead of a big holiday quarter. The reasoning behind this expectation is the fact that Wu believes Apple will partially absorb quality control costs associated with the iPhone 5.
Wu believes that Apple’s near-term gross margins will be between 40.5% and 41.5%, numbers that are lower than Wall Street consensus which is currently between 42% and 43%. The prediction also comes less than a week after an unnamed official with Foxconn said the new iPhone 5 is the most difficult device the company has ever assembled. The complexity behind the design of the iPhone 5 has apparently resulted in low yields, which has led to constrained supplies in the market.
Apple’s margins will continue to be pushed lower by the anticipated launch of a smaller 7.85-inch iPad mini. Wu expects Apple will end up selling its iPad mini at lower margins than the full-size iPad, at least initially, giving the company the opportunity to achieve a lower price point and take on competitors such as the Amazon Kindle Fire HD and the Google Nexus 7.
As far as the September quarter, Wu believes Apple sold between 25 million and 26 million iPhones, which is again slightly lower than the Wall Street consensus of 27 million. He predicts that the iPad sales will be around 16.5 million, below the consensus of 17 million to 18 million. According to him, the Mac will see about 4.8 million units sold which is actually on par with the Wall Street consensus of 4.7 million to 4.8 million. We’ll find out soon enough once Apple’s earnings report is released on Thursday.