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Apple Inc. (AAPL): iPhone Launches Mean Tighter Margins

Apple Inc. (NASDAQ:AAPL), for the most part, has seen its gross margins steadily increase over the last few years. Not that long ago, the company posted gros margins under 30 percent, but that had increased to more than 47 percent during the second quarter of 2012 – the quarter before the launch of the iPhone 5. Why is that noteworthy? Because it seems that Apple Inc. (NASDAQ:AAPL) recently posted a below-expected margins report in its most recent quarterly earnings, and the drop seems to coincide with another similar event – the launch of the i5’s predecessor.

Apple Inc. (AAPL)

Apparently there were those analysts and others who might have either forgotten or just didn’t see history coming. Two years ago, when Apple Inc. (NASDAQ:AAPL) launched the iPhone 4, gross margins reported by the company in its quarterly earnings just after that launch plunged from about 57 percent in the prior quarter to about 47 percent, then slowly rose back to prior levels more than a year later.In the wake of disappointing Apple Inc. (NASDAQ:AAPL) margin results in the company’s most recent quarterly report – which includes the quarter in which the iPhone 5 was launched – a couple of analysts have stepped back and presented more optimistic research notes to investors Monday morning – stating that they’ve seen this before and to buy now while the stock is cheap.

Apple Inc. (NASDAQ:AAPL) reported gross margins in the September 2012 quarter to be about 40 percent, which was a sharp drop from the previous quarter’s 47 percent, and below analysts’ expectations of 41.4 percent. But considering the similarities to the iPhone 4 launch a couple years ago – new design, new hardware features and thus some supply and production issues in the first few weeks – it probably should not have been unexpected, and neither should have been the guidance from the company when Apple warned that its margins for the December quarter may fall to as low as 36 percent – a level not seen by Apple Inc. (NASDAQ:AAPL) since 2008.

However, that would make for one small difference from what happened two years ago. According to the chart attached to the article linked earlier, one can see that the iPhone 4 margins hit their low point right after the launch and immediately started back up – this time around, though, Apple Inc. (NASDAQ:AAPL) is projecting margins to fall further for another quarter before rallying. That in itself could e the reason for the stock giving up more ground after the earnings report. Since peaking at $705 a share just prior to the i5 launch, the stock is down 100 points (nearly 14 percent) in about a month.

Despite this, though, Deutshe Bank’s Chris Whitmore wrote in his research note, “We believe near-term margin concern is overblown, and is creating a very attractive entry point for AAPL shares. Reiterate Buy.”

This could be great news for value investors, including existing investors in Apple Inc. (NASDAQ:AAPL) stock like billionaire fund manager Julian Robertson of Tiger Management.

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