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iPad 2 sales, component pricing driving Apple margins

updated 10:30 pm EDT, Wed July 13, 2011

Nokia settlement may factor in on July 19 results

The iPad 2 is leading the way to improved financial numbers for Apple's fiscal third quarter, according to Apple analyst Maynard Um of UBS Equity Research. He is raising his forecast for the quarter -- Apple announces Q3 results July 19 -- due to stronger iPad sales, now estimated at 7.9 million units, alongside improved component pricing that Um projects will add 0.6 percent to Apple's gross margin. Shaw says a less dilutive back-to-school promotion that provides a $100 credit in apps on the App Store -- instead of $220 in free hardware with physical costs to Apple as was the case in previous years -- will factor into the improved margin as well.

Other factors in the improved gross margin are a potential upside in reversal of warranty accruals and a possible reverse benefit from the Nokia Settlement, depending on Apple's behavior. If Apple has been accruing for the Nokia royalties and worked out an improved rate in the final settlement, it could add to the gross margin. A lack of accruals would likely be a negative hit, but Um believes the better component numbers and iPad sales can absorb it.

Um is forecasting a 3rd quarter at $24.9 billion at an EPS of $5.88, up from $24.8 billion and EPS $5.73 to reflect stronger iPad2 sales and a gross margin of 37 percent, based on the above factors. The fiscal year 2011 stands estimated at $104.8 billion at an EPS of $25.26. Um is rating Apple at 20x the 2011 calendar year EPS for a $510 per share target. Apple is currently trading at $359, just short of its all-time high of $364.90.




by MacNN Staff

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