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%).