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Needham: Gross margin undermines Apple Q3 results

updated 09:20 am EDT, Tue July 22, 2008

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



  1. paulc

    Joined: Dec 1969



    Just about a 35% gross margin? Talk about gross, 10% would be considered profitable. Ever wonder why their cash hoard seems to grow by leaps and bounds?

    From the consumer perspective, they could easily lose 25% of the retail prices and STILL be a very profitable business.

  1. bkoch

    Joined: Dec 1969


    Investor's advantages?

    What advantages as an investor do I have? Apple does not pay any dividends, so it really does not matter if they earn 1 or 1'000'000'000$. The stock price has no connection to reality anyway, otherwise it would not lose 10% today but still go up to 240$ despite of all the facts that make it fall today. This is crazy!

  1. Deal

    Joined: Dec 1969


    Half the answers...

    ...none of the truth.

    Gross is gross, keep that in mind. Apple spends more money on R&D than any other computer maker. Apple has a lot of overhead to cover. Granted, I'll bet Apple has some pretty good net margins too, but no where near that number.

    Keep up the great work. I'd rather buy quality instead of quantity.

  1. ZinkDifferent

    Joined: Dec 1969


    as an investor...

    It's in holding a stock 'long' that will outperform your best bank accounts (5% -- woohoo!), and most, if not all, real-estate investments these days. Buy it with a 10 year outlook, and buy regularly when idiots sell off....

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