Analysts Speculate on Code Word in Apple Earnings Report

July 26th, 2007 at 3:00 PM - News by John Martellaro

Peter Oppenheimer, Appleis Chief Financial Officer, said something at Wednesdayis Earnings Report that caught the attention of analysts. Theyive reached for their calculators and have been speculating about what a code word Oppenheimer used really means, according to Computerworld on Friday.

It started when Mr. Oppenheimer provided guidance that Gross Margins would decline in the next quarter and said that the cause would be "the back-to-school promotion, higher commodity costs and product transitions."

Apple has had back-to-school promotions before, and they havenit seriously affected Appleis Gross Margins. So Ezra Gottheil, an analyst with Technology Business Research Inc. suspected that the cause is related to the words "product transitions."

"iProduct transitioni is code for cool new stuff," Gottheil said.

By using the decline in Gross Margins and the Revenue projection for next quarter, Gottheil calculated that Apple would incur an increase in Cost of Goods Sold (COGS) of over US$600M.

Just exactly what that means started a healthy discussion amongst analysts. Piper Jaffray analyst Gene Munster said, "We think thereis an 80% chance of new iMacs". Mr. Gottheil also thought that new iMacs would be likely, with higher costs of goods perhaps due to larger displays or LED-backlit screens. Another idea thrown out was a new (6G) video Pod that would look just like an iPhone. An ultralight MacBook was also discussed.

What ever is cooking, it seems itis going to incur some initial extra expense for Apple in cost of goods. "Appleis never emphasized product transitions like this in the past. And they usually donit if itis just one product coming," Mr. Munster said.