AT LEAST three brokerages have cut their price targets on Apple by up to $50 a share after the technology giant surprised analysts by forecasting lower margins for the current quarter.
For the three months to December – the group’s first quarter – Apple forecast revenue of $52 billion (£32.3bn), below estimates of $55bn. It expects margins of 36 per cent, far lower than Wall Street expectations of 43 per cent.
Analysts focused on the decline in margins and played down the significance of a fall in iPad sales in the last quarter, as users waited for the iPad mini. Shares in the group were down some $7.50 at $602 last night.
Evercore Partners analysts Rob Cihra and Edison Yu said that Apple’s forecast decline in gross margin, even assuming it was deliberately aiming low, still pointed to an unusual reduction. The brokerage cut its price target on the stock to $775 from $800.
Nomura Equity Research said it expected production costs to rise in the current quarter, after Apple redesigned so many of its products at once.
“The iPhone 5, iPod Touch, iPod nano, iPad mini and iMac all feature new form factors and our checks with the supply chain indicate that many of these are very complex to manufacture and are likely resulting in reduced production efficiencies,” Nomura analysts said in a note as they lowered their price target to $660 from $710.
Apple said it expects 80 per cent of revenue in the current quarter to come from new products but did not increase the product prices to offset higher costs and maintain its margins.
Analysts, however, expect gross margins to recover by June next year as rising volumes trim manufacturing and component costs.
Apple chief executive Tim Cook said there was a heavy backlog for the latest iPhone but the company had mostly worked out kinks in its supply chain.
Despite lacklustre fourth-quarter numbers, Apple ended its 2012 financial year with a 45 per cent increase in revenues to $156.5bn, while net profit was up 61 per cent at $41.7bn.
Arch-rival Samsung yesterday reported strong sales of its Galaxy phones, propelling quarterly profit to a record high. However, its shares dropped on the prospect its growth would slow in an increasingly crowded smartphone market.
Samsung said July-September net profit nearly doubled to 6.56 trillion won (£3.7bn). Revenue for the third quarter climbed 26 per cent to 52.2 trillion won.
Analysts say investors are worried that the widespread adoption of smartphones in developed markets and heightened competition from rivals could squeeze profit from the lucrative smartphone business.
Samsung and Apple together account for nearly half of global smartphone sales.
Meanwhile, Edinburgh-based chip developer Wolfson said its “audio hub” design had been selected by Samsung for its latest tablet device and smartphone models.
Chief executive Mike Hickey added: “We are delighted that Samsung has chosen Wolfson’s audio solution once again, this time for its latest innovative devices, the Galaxy Note 10.1 and Galaxy Note II.”