Needham on Apple Q3

Apple's third-quarter financial results were extremely positive in some ways, but for investors, any advantages were undone by future prospects, writes the research group Needham. The firm say it is impressed by 2.5 million in Mac sales, a 41.5 percent growth year-over-year, or nearly three times the market rate. In total Apple revenues rose 38.2 percent to reach $7.46 billion, producing a 28.7 percent EPS jump to $1.19.

The problem, says Needham, is that Apple guidance is calling for a continual slide in gross margins. Though they were 34.8 percent in Q3, the forecast is for 31.5 percent in Q4, and an average of 30 percent throughout FY09. Needhams claims this has sent a "shockwave" throughout the investment world.

The firm argues that Apple may be willing to take a hit on margins, with the tradeoff of greater market share and faster revenue growth. In 2009, for instance, the company may be willing drop the prices on iMacs and MacBooks.

As a result, Needham says it is dropping its FY08 EPS estimate from $5.25 to $5.15, and its FY09 estimate from $6.95 to $5.95. Mac shipments may shoot from 12.9 to 14.2 million units however, and Apple stock is still being rated a "strong buy," with a price target of $240.

by MacNN Staff