Analysts Speculate on Apple Products, Pricing in 2009

by , 12:50 PM EDT, July 22nd, 2008

A host of analysts weighed in on Apple's Earnings Report on Monday, and many speculated that Apple will be taking a cut in profits in 2009 to fuel growth with lower cost products(s) in a weak economy. Only one wondered about the health of Steve Jobs.

Eric Savitz at Barrons recapped the investor notes that flooded in on Tuesday morning.

Analyst Yair Reiner with Oppenheimer may have summed it up best: "The obvious question is: what magnitude of product innovation (and revenue upside) would propel Apple to sacrifice so much profit?" he wrote. "Our guess: something big. While product details and the appropriate growth adjustments will emerge over time, we note that innovation has always been the key to Apple?s growth and premium valuation ... "the near-term challenge for Apple?s shares is that the cost of the product enhancements will take an immediate toll on earnings forecast, while the potential long-term revenue upside will only be revealed in the ripeness of time, when the new products are introduced. This is a test of faith."

The reason for the lowered Gross Margins might be a new notebook line, according to Bill Fearnley with FTN Midwest. "We believe AAPL is lowering its gross margin expectations because the cost of goods of the new notebooks will likely be higher than current models," he wrote. "We do not believe AAPL is lowering its notebook prices. Instead we believe AAPL is likely to update key components with higher COGS." [Cost of Goods Sold]

Toni Sacconaghi with Bernstein Research agreed and pointed out that Apple normally only predicts gross margins one quarter in advance. He believes there will be "a potentially significant forthcoming set of re-pricing actions on new products, most likely in Apple's notebook or iPod lineup."

The consensus of the dozen analysts was that Apple is going to maintain innovation with a new, unnamed product or products that will have expensive components, but Apple will trade profit for lower prices in a continued weak economy, and that's what has likely led to a significant drop in the stock price overnight.

Only one analyst, Chris Whitmore with Deutsche Bank succumbed to worrying about Mr. Jobs' health. "The absence of a straightforward denial of health issues will increase speculation of a worst case scenario," he wrote. Nevertheless, as with most others, he maintained his Buy rating for AAPL.