Appleis high third quarter earnings were balanced by conservative guidance for fiscal 2009, catching analysts off guard. The company said it is expecting next yearis gross margin to come in at 30 percent instead of the 33 to 34 percent analysts where expecting, according to American Technology Researchis Shaw Wu.

Despite the unexpected guidance, Mr. Wu thinks Apple may have made the right choice. "While we believe Apple may likely be overly conservative," he said, "we believe directionally it could be correct in that the easy gains from favorable components will likely prove more difficult given rising raw materials costs including plastics, copper, gold, aluminum, etc."

Thanks to the higher margins the iPhone offers, and with production ramping up, some analysts were expecting Apple to guide more favorably. Apple, however, claimed that a yet to be announced "product transition" would have an impact of revenue.

That may be, but Mr. Wu thinks that there is more to the conservative guidance. "We suspect general commodities inflation is also a consideration in the cautious tone," he said.

Looking forward, Mr. Wu has adjusted his iPhone gross margin model to 32.8 percent from his previous 34 percent. He is projecting US$32.9 billion in revenue and $5.34 EPS, up from his earlier $5.33 EPS. For fiscal 2009, he is expecting $39.2 billion in earnings and a $6.35 EPS, up from $38.6 billion.

Mr. Wu is maintaining his "Buy" status and $220 target price for Appleis stock. Apple is currently trading at $152.80, down 13.94 (-8.11%).

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