Apple Margin Concerns Fade, Focus Shifts to iPhone Launch

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Apple Margin Concerns Fade, Focus Shifts to iPhone Launch
A rise in margins has raised hopes that Apple Inc may be able to hold the line on pricing ahead of the launch of new iPhones later this year.

shares were set to open slightly higher at $95.33.

At least six brokerages raised their price targets on the stock by as much as $12 to a high of $123.

Apple's gross margin rose to 39.4 percent in the third quarter from 36.9 percent a year earlier, and the company forecast margins of 37-38 percent for the current quarter.

iPhone sales tail off in the quarters before a new launch, usually in September, as potential buyers hold off purchases.

"With (gross margins) stabilizing (year-on-year) and core demand trends solid, we think investors will want to own Apple stock (going) into bigger-screen iPhone 6 and ecosystem-expanding iWatch/iBand launches," Evercore Group analysts wrote in a note on Wednesday.

The world's most valuable technology company forecast revenue of $37 billion-$40 billion for the current quarter, lower than the average analyst estimate of $40.44 billion, according to Thomson Reuters I/B/E/S.

Apple did well in a seasonally soft June quarter and gave a "good enough" outlook, but investors are focusing more on the launch of new products, the deal with China Mobile Ltd and a push into the enterprise market with IBM Corp , Cantor Fitzgerald analyst Brian White wrote in a note.

Apple launched its iPhone on China Mobile's network in January and partnered with IBM this month to sell iPhones and iPads loaded with applications geared at enterprise clients this fall.

"The bottom line is that the iPhone 6 reception is what matters right now (the iWatch is also expected to come this year, but we expect very limited supply)," Macquarie Capital (USA) Inc analysts wrote in a note.

Macquarie maintained its "outperform" rating on Apple's stock, but raised its price target to $102 from $95.

Of the 53 analysts covering the stock, 43 have a "buy" or a higher rating, 9 have a "hold" and just one has a "sell" rating, according to StarMine data.

Analysts expect a staggered launch of new iPhones, with a 4.7-inch flagship launching late September, followed by a 5.5-inch phablet around November, apart from any new products such as an iWatch.

Evercore analysts said they expected Apple to sell about 37 million iPhones across models in the September quarter and 62 million in the December quarter, driven by pent-up demand for a larger-screen iPhone 6.

"We believe that a larger screen iPhone, combined with Apple's strength in software and ecosystem, will be well received in the market and will drive unit growth," BMO Capital Markets analysts wrote in a note.

Apple's shares, which closed at $94.72 on the Nasdaq on Tuesday, have risen about 55 percent in the past 12 months.

© Thomson Reuters 2014

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