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Apple Cuts Gross Margin Forecast to 36% Per 10-K Filing

Tyler Durden's picture


From the just released 10-K:

The gross margin percentage in 2010 was 39.4% compared to 40.1% in 2009. This decline in gross margin is primarily attributable to new products that have higher cost structures, including iPad, partially offset by a more favorable sales mix of iPhone, which has a higher gross margin than the Company average.

The gross margin percentage in 2009 was 40.1% compared to 35.2% in 2008. The primary contributors to the increase in 2009 as compared to 2008 were a favorable sales mix toward products with higher gross margins and lower commodity and other product costs, which were partially offset by product price reductions.

The Company expects its gross margin percentage to decrease in future periods compared to levels achieved during 2010 and anticipates gross margin levels of about 36% in the first quarter of 2011. This expected decline is largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases.

And also:

The Company expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during 2010, largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases.

Is the world's most hedge fund owned stock about to flash crash? Or was this announced previously?


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Wed, 10/27/2010 - 16:59 | 681528 furieus
furieus's picture

So it begins

Wed, 10/27/2010 - 17:40 | 681632 Cvillian
Cvillian's picture

TD, to be fair, this is cut and paste from their 4Q10 transcript:

As we move ahead into the December quarter, I'd like to review our outlook which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be about $23 billion compared to $15.7 billion in the December quarter last year. We expect gross margins to be about 36% reflecting approximately $52 million related to stock-based compensation expense. We expect OpEx to be about $2.325 billion including about $250 million related to stock-based compensation.

We expect OI&E to be about $65 million. And we expect the tax rate to be about 25.5%. We're targeting EPS of about $4.80. In closing, we're thrilled with our record September quarter and fiscal year 2010 results. We're very enthusiastic about our innovative product line-up and our significant opportunities for growth as we head into fiscal 2011.

And we remain extremely confident in our new product pipeline. Before taking your questions, I would like to turn the call over to our CEO, Steve Jobs.


I don't own AAPL stock.

Wed, 10/27/2010 - 21:22 | 682118 CPL
CPL's picture

POS gadget company that uses the same crap hardware as everyone else does and charge the same as rent to own companies.


Gentleman/ladies I think we have a business model.

Wed, 10/27/2010 - 17:00 | 681530 Matto
Matto's picture


Wed, 10/27/2010 - 18:03 | 681688 threefingerscam
threefingerscam's picture

Here, so Reggie doesn't have to blow his own horn again:


Yah Baby.


Wed, 10/27/2010 - 18:13 | 681721 pussfeller
pussfeller's picture

Beat me to it.

Wed, 10/27/2010 - 18:15 | 681727 Reggie Middleton
Reggie Middleton's picture

You see, that wasn't hard. Blow my horn for me and I wouldn't have to waste breath doing it myself. :-)

What is really interesting is to see what the landscape looks like when Gingerbread comes out in a month or two and Msft kicks Into to high gear with their new mobile OS. Even rim will make a run for it. Things will get very heated very quickly and anyone looking for fat margins during such period may be highly disappointed.

Wed, 10/27/2010 - 17:01 | 681534 Spalding_Smailes
Spalding_Smailes's picture

Harry just bought for the long haul....? WTF

Wed, 10/27/2010 - 18:12 | 681713 HarryWanger
HarryWanger's picture

Harry also sold on this news immediately. So much for the long haul. When I hear this kind of stuff actually filed, it's time to leave. Margin peaks equal stock peaks. 

The chart was looking very similar to when I bought at 240 so I thought I'd go with it into the holidays. But I didn't like this at all. 

Wed, 10/27/2010 - 18:29 | 681746 Spalding_Smailes
Spalding_Smailes's picture

So now your out of apple for the long haul right. No more post about how great this is and that is ....

You bought at 240 jump'd out early at 290, then you have been pumping up this market for weeks, follow the bouncing ball,pomo,...bla,bla,bla...

... Now a blip on an old report from days back and you sell 4 hours after you bought for the long haul, interesting....

What about the big Q.E. 2 headfake, that will float all boats....?

But maybe if apple shakes off this news you will jump back in for the long haul on friday or next week...?

BWAHhhhhhhhhhhaaaaaaaaaa hhhhhhhhhhhhaaaaaa whew, ...

Wed, 10/27/2010 - 18:33 | 681757 HarryWanger
HarryWanger's picture

No, I can get in for the long haul cheaper now. No harm. Why hold if I know it's going to pull back now?

Anyway. Market is just moving along until next week. Like I said, we could even pull back as far as 1150 on SPX before the elections due to fund selling and manipulation to set up for the "surprise" QE2 that will propel stocks. 

Wed, 10/27/2010 - 18:46 | 681776 Spalding_Smailes
Spalding_Smailes's picture

So now you know iiiitttts going to pull back off old news ...? What about Q.E. 2, what about everything getting better ? What about the good earnings report ? ipad, global sales ?

The long haul is not conserned with margins being cut to 36% that should not matter .... ? The long haul is the long haul harry .... geez'

You have 3 months of pimp'n apple on this blog .... The be all end all. All hot air I guess !!!



Wed, 10/27/2010 - 19:47 | 681911 homersimpson
homersimpson's picture

You're making a dangerous assumption that APPL will continue on this growth rate (which they will not given the size of their company and how much loot they have to sell to exceed their sandbagged expectations) so the bargain you seek will not be there in the long term. Just take your taxpayer-funded gains - and more importantly - stop pimpin' APPL like your wife was Steve Jobs.

Wed, 10/27/2010 - 20:55 | 682065 sysin3
sysin3's picture

Harry ... you, like Cramer, seem to believe your own bullshit.  Ain't gonna go down good.

Thu, 10/28/2010 - 05:25 | 682732 EhKnowKneeMass
EhKnowKneeMass's picture


by HarryWanger 
on Wed, 10/27/2010 - 12:49

And I was able to pick up some AAPL today under 306. Back in that trade. Although now this is a very long term play for me. No quick money here but long term is going to be great.


Mr Wanger,

You are just a gambler. Based on your flip-flops, I feel you know didly squat about didly squat. You are riding this wave, just like many other, based on a gut feel, the Bermonkey put and nothing else. You trump card is the assumption that the Fed will always be there. Maybe, they will. 

A few hours ago, according to you, Apple was a long term play, based on what - Fundamental or Technical analysis? Most probably, neither. Just a gut feel, I presume, and an assumption that people will keep on buying the iShits with iMoney they do not have via the iCredits created out of thin air. How else can you reach the conclusion that Apples is a long term play and change your investment thesis 4 hours later. Oh! because of a 10-K filing you would say, I am sure. So, basically, all your analyses can be ruined by a company, in a moment's notice, by changing a key piece of information. And fess up, you had no clue about this vital piece of news for quite a while. So, you were walking into your investment thesis blind as a bat?

Even if you did some thorough analysis, your information source is outdated the moment it is posted - be it a chart or a company's financial information or their guidance. They can always project a rosier picture in all their interactions with the media and the masses and, then, very quietly change it using filing. Your analysis is only as good as the lies they project. 

Good luck with all your gamblings. Please continue to keep this Ponzi alive, while I quitely head for the exits. I need folks like you to be there so that I can slowly liquidate.

By the by, I did not junk you.

Wed, 10/27/2010 - 18:35 | 681763 Rasna
Rasna's picture

Eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeasy Spaulding,

You'll blow an O ring.

Wed, 10/27/2010 - 22:51 | 682277 snowball777
snowball777's picture

Confabulations on your brilliant call.

Wed, 10/27/2010 - 17:01 | 681535 sysin3
sysin3's picture

Trees don't grow to the sky.

How much better can it get ?

Law of large numbers.

[insert next old saying here]

Wed, 10/27/2010 - 17:04 | 681536 plocequ1
plocequ1's picture

Paging Pomo, Paging Pomo.. Please respond to Appl issue.. Stat!!

Wed, 10/27/2010 - 17:03 | 681540 SMG
SMG's picture

Some paid agent of influence (HarryWanger) who trolls ZeroHedge was just on here saying he was buying.  This site is great, but beware, there are enemies in our midsts.

Wed, 10/27/2010 - 17:40 | 681629 Cheesy Bastard
Cheesy Bastard's picture

An i for an i.

Wed, 10/27/2010 - 17:02 | 681543 There is No Spoon
There is No Spoon's picture

they're frontrunning the rare earth price explosion.

Wed, 10/27/2010 - 17:04 | 681544 Spalding_Smailes
Spalding_Smailes's picture

This decline in gross margin is primarily attributable to new products that have higher cost structures, including iPad, partially offset by a more favorable sales mix of iPhone, which has a higher gross margin than the Company average.


Has nothing to do with android, facebook phone rumors ???

Wed, 10/27/2010 - 17:03 | 681545 frankTHE COIN
frankTHE COIN's picture

" But can it core a apple ? "

           The Honeymooners

Wed, 10/27/2010 - 17:05 | 681548 ZackAttack
ZackAttack's picture

Margin compression. Make note of this theme.

I wonder if this could have anything to do with recent Fed monetization efforts?

Wed, 10/27/2010 - 17:06 | 681550 TooBearish
TooBearish's picture

No worries - AAPL will just make it up on volume....Iphones for everyone (except white) for Xmas!

Wed, 10/27/2010 - 17:10 | 681561 TheGreatPonzi
TheGreatPonzi's picture

Where is Harry?

edit: oh, I see, he's the one who junked the first post.

Wed, 10/27/2010 - 18:13 | 681719 HarryWanger
HarryWanger's picture

Actually, you can find me posting right when this news hit. Actually, before it went mainstream on another thread here on the POMO "baked in" story.

Wed, 10/27/2010 - 17:40 | 681563 Cvillian
Cvillian's picture

See above

Wed, 10/27/2010 - 17:14 | 681571 willien1derland
willien1derland's picture

Wait  - <sarcasm on/> you mean earnings can go DOWN as well? I have seen no such announcement from the SEC or CNBC?! I thought America would never have enough iPads to suffice its demand! Now I expect you will tell us that Google is evil </sarcasm off> - I guess this is where AAPL announces it takeover of Verizon, huh...

Wed, 10/27/2010 - 17:16 | 681576 homersimpson
homersimpson's picture

I guess the iPhones are going to have vinyl exteriors now..

Wed, 10/27/2010 - 17:19 | 681581 GoinFawr
GoinFawr's picture

Wow, Robotrader sure had a nice top call on aapl just before the after-hours-mini-flash-crash not too long ago.... Oh wait, I believe that was a 'pump', not a 'top-call', my bad.

Warmest Regards


Wed, 10/27/2010 - 17:26 | 681601 I am a Man I am...
I am a Man I am Forty's picture

Oh no!  Margins are only 36%!!!  That is almost as bad as they were way back in 2008!!  

Tyler, any forecast for net income??  You know, what really matters.  This is old news as mentioned above.

I'm not gonna buy an Apple product now because I am getting more bang for my buck.


Wed, 10/27/2010 - 17:27 | 681602 -Michelle-
-Michelle-'s picture

So, the reason they won't make as much is because their new stuff is so awesome?

Wed, 10/27/2010 - 17:28 | 681604 divide_by_zero
divide_by_zero's picture

PPI takes a bite out of AAPL?

Wed, 10/27/2010 - 17:40 | 681635 forgetalpha
forgetalpha's picture

yet again ZH is struggling to find ANYTHING that will prove them right....this is week old news...stop following CNBC and follow the 13Fs when they are whos the lemming

Wed, 10/27/2010 - 18:13 | 681720 geminiRX
geminiRX's picture

like you're a market oracle?

Wed, 10/27/2010 - 17:55 | 681667 lbrecken
lbrecken's picture

Well since JOBS is coaching his friend Hastings at NFLX with spinning things the stock should go up cause they are new and innovative products right?

Wed, 10/27/2010 - 18:19 | 681735 Mercury
Mercury's picture

The new pretty color for the Iphone is apparently going to be tougher to pull off than originally expected.  So there goes what's left of the economy...

Wed, 10/27/2010 - 18:48 | 681780 The Alarmist
The Alarmist's picture

Something inside me from many years ago says I should short AAPL, but I learned to resist the urge.  Marty Zweig's famous phrase, "Don't fight the Fed" haunts me.  It used to be about interest rates, but it the Fed has metastisised into far more corners of everday life since he coined the line.

Wed, 10/27/2010 - 18:48 | 681782 shushup
shushup's picture

 Wish that was a reason to short but Who cares? The trade isn't about fundamentals. It's about POMO and the machines. They determine if a stock goes up or down not margines.

Wed, 10/27/2010 - 18:49 | 681783 shushup
shushup's picture

 Wish that was a reason to short but Who cares? The trade isn't about fundamentals. It's about POMO and the machines. They determine if a stock goes up or down not margines.

Thu, 10/28/2010 - 08:50 | 682935 shushup
shushup's picture

I see this morning AAPL is now flat - not down.

margins do not matter in the current trading atmosphere.

Wed, 10/27/2010 - 19:05 | 681812 deez nutz
deez nutz's picture

The sound of silence .....

Goodbye APPL my old friend, we have churned you once again.

made all our money now say goobye,

give it to the bag holders and watch them cry. 

The sound of profit in Goldman's halls............Blankfein's god and got big balls!

This is the sound of APPL's silence.......


Wed, 10/27/2010 - 19:33 | 681880 mmlevine
mmlevine's picture

that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases.

Prices for raw materials, components and labor in China are increasing at rapid pace.  The Chinese are afraid the the Yuan will get much stronger against the USD in the very near future and are raising prices now to compensate.  It's across the board price increases - not just to AAPL.

Wed, 10/27/2010 - 19:35 | 681885 Common_Cents22
Common_Cents22's picture

Apple has been forced to accelerate their goodie pipeline from the fast follower droid competition for smart phones and also tablets.

Another hit is going to be to Ipod sales as smart phones will largely cannibalize Ipods.

Wed, 10/27/2010 - 19:48 | 681916 DoctoRx
DoctoRx's picture

Let's see about bubbles.  CSCO in 2000:  nearly $600 B in mkt cap on abt $20 B in CY sales.

AAPL in 2007:  stock nearly doubles, op mgn 19.7%.

AAPL CY 2011 projected earnings $20+.  Projected 6.7% FCF yield.  Cheap on various metrics?  No.  Cheap by classic GARP criteria?  Yes.  That many AAPL buyers are cultlike has not (yet) translated into cultlike AAPL stock valuations. I own AAPL but only own one AAPL product and don't love it, don't hate it.  But what do I care about that?  I'm a vegetarian and trade in and out of MCD all the time.

IMHO too many commenters here are too hung up on op mgns.  Std Oil grew by cutting its margins.  In exploding growth fields such as the ones AAPL is leading and in some cases has pioneered, gaining profitable market share is the imperative.  One cares about margins in commodity businesses in part because there the winner runs the operationally tightest ship.  While Apple has competition, it's hardly selling undifferentiated commodity products.  If this were the bubble era, given AAPL's growth rate, it would have a much higher stock price and this latest "news", which may well be a lowball estimate in any case, would be grist for short-sellers' mills.  Yes, the stock mkt is seriously overvalued and manipulated indeed, but the truly strong multinationals are in no bubble.  Not cheap, but it's not summer 2007 or 1999-2000 anymore.

One more thing.  Now that businesses can buy Apple products, it's not close to the law of large number constraints.  Not even close.     



Wed, 10/27/2010 - 20:16 | 681971 Everybodys All ...
Everybodys All American's picture

Is it fair to say that the improved margins on Apple recently have been as a result of moving much of the manufacturing to China?

Wed, 10/27/2010 - 22:14 | 682210 Bartanist
Bartanist's picture

Apple is just a Chinese company with a US CEO. They do hardly anything in the US anymore.

Thu, 10/28/2010 - 07:25 | 682788 Djirk
Djirk's picture

ummm hello, Cupertino is packed full of overpaid people.

Not to mention all the genius Apple stores

Wed, 10/27/2010 - 23:09 | 682309 Gimp
Gimp's picture

"This expected decline is largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases. "

 Sure it has nothing to do with the fact that the Foxconn "sweatshop" in China where Apple products are made had to increase wages, hence costs, after the publicity of ten+ employees committed suicide due to horrible working conditions and pay.  Welcome to the future....

Wed, 10/27/2010 - 23:38 | 682366 skyr191
skyr191's picture

valuation downgrade, bitchez.

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