Analyst: AAPL Lower Margins More than Just New Products

| Apple Stock Watch

While Apple’s Q4 gross margin for its fourth fiscal quarter came in above guidance, it was below analyst expectations. Apple blamed the difference on higher costs for building new products, although UBS analyst Maynard Um thinks the company’s recent 10-K filing shows there’s more to the story.

According to Mr. Um, Apple missed analyst expectations thanks in part to product warranties. “Based on our analysis, an ‘over accrual’ of product warranties of  about $170 million (warranty accruals increased by $300 million quarter over quarter while warranty claims only increased $131 million) drove 90bps of the margin miss and impacted EPS by $0.18,” he said.

Apple had previously said it expected to show a 35 percent gross margin for the quarter, but instead reported a 36.9 percent margin. In comparison, UBS was estimating a 38.2 percent gross margin for the quarter.

While Apple’s fourth quarter margin may not have hit analyst estimates, Mr. Um is still optimistic about where the company is headed in 2011 thanks in part to expectations that Verizon will start carrying the iPhone early in the year.

“We believe there [are] implications that an iPhone is coming to Verizon in calendar 1Q,” Mr. Um said. “Our checks also indicate a potential 50 percent sequential increase in Q1 capacity for a certain iPhone component, which we believe is related to a CDMA iPhone.”

Apple hasn’t commented on the possibility of an iPhone that’s compatible with Verizon’s network, nor has Verizon dropped any hints that it will soon carry the iPhone.

Mr. Um is maintaining his “Buy” rating and US$365 target price for Apple’s stock. Apple is currently trading $305.11, down 0.13 (-0.04%).

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Comments

geoduck

I hadn’t heard the term Warranty Accrual before so I just looked it up.
It is the amount set aside to cover Warranty Claims. This means that Apple is spending a lot less than it expected on failed devices.

I take that as good news

Tiger

Also take into account they’ve been hiring like gangbusters. While Wall Street generally regards this as a negative due to the high cost of labor, we as customers…make that citizens, should be thrilled because it’s helping to battle unemployment, putting people to work, and generally great for supporting an embattled economy.

BurmaYank

How would the cost of doubling the NC server farm (not to mention the enormous cost of powering it) show up?

BTW, IMHO, Apple should buy up this company and all related patents, and then use this technology at its NC plant to supply it with all the unlimited free (stored hydrogen) electricity it needs (as well as to donate 100’s of these units to Haiti’s cholera areas to thereby cure all the victims & permanently eradicate cholera and energy-scarcity-exacerbated poverty there, in the meantime. Also BTW, this process has no net consumption of water, because it regenerates all the water it initially electrolyzed when it generates electricity from the stored hydrogen it had generated from sunlight - NIFTY!!! & ecologically utterly footprintless!!!)  Then Apple could build a trunk to Google’s new 350 mile “Atlantic Wind Connection” offshore wind-energy transmission line along the coast from Virginia to New Jersey, and sell Apple’s excess electricity to Google and the entire eastern US/Canada.  And sell these units to rich desert nations, until the economies of scale made them affordable by all the poor lands, who could then utterly stop using fossil/nuclear fuels, and stop deforesting their lands (which indirectly leads to the #1 cause of infant mortality in the world: smoke-caused pneumonia).  How would you like a Nobel Prize, Steve, before you hang it all up?

Constable Odo

Do target prices currently reflect Verizon iPhones or has that been baked in already.

MOSiX Man

Um…

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