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Apple sees dark days ahead

Posted: 24 Apr 2009     Print Version  Bookmark and Share

Keywords:iPhone  NAND flash  component prices 

Apple Inc. may have defied gravity by posting its strongest ever non-holiday quarter in the first three months of 2009 but the company said it expects to witness declines in its revenues, profits and gross margins in coming months as component prices firm up, ending significant declines.

The iPhone maker posted quarterly revenue of Rs.40,570.86 crore ($8.16 billion), net profit of Rs.6,016.02 crore ($1.21 billion) and gross margins at 36.4 per cent in its latest period ending March 28. That's up from revenue of Rs.37,339.11 crore ($7.51 billion), profits of Rs.5,220.51 crore ($1.05 billion) and margins of 32.9 per cent in Q1 08.

The company, however, expects to feel some of the reality of the recession in the next three months. It predicted revenues down to about Rs.38,780.97 crore ($7.8 billion) in its coming quarter. Profits per share will decline to a dollar or less a share, down from Rs.57.67 ($1.16) in the last quarter, and gross margins could slide to 32 per cent in the next and dip again to about 30 per cent in the September quarter, the company said.

Tim Cook, Apple's chief operating officer said he expects component costs in the coming period will be about flat with today's levels. Cook had said significant declines in component costs such as DRAM, flash and LCDs bolstered the company's profits in the last quarter of 2008.

"There will be some commodities such as NAND flash that will increase [prices] sequentially [due to] reduced wafer starts from several suppliers," said Cook. "Last quarter [the semiconductor industry] wrang out [some of its] excess inventory, and I don't expect to see the reductions we saw in last quarter," he said.

"We don't want you to count on the gross margins you have seen that have benefited from a commodity component environment," Cook told Wall Street analysts on a conference call releasing quarterly earnings April 22.

Cook declined to speculate about the macroeconomic environment, but he did say Apple's product growth this year is roughly in line with 2008 levels. "Were not entering the game of predicting bottoms, but if you look at product areas we see very little difference from last year," he said.

Peter Oppenheimer, Apple's chief financial officer, blamed a number of factors for Apple's gloomy forecast including price pressure to win seasonal deals for computer sales in K-12 education and the overall economic downturn.

iPhone boom
Apple reaped higher revenues and margins than anticipated in its latest quarter thanks to continued declines in component prices and software and accessories sales at higher than expected levels, Oppenheimer said.

"We are within hours of reaching our one billionth download on App Store," he added. "We believe it's a key differentiator in the mobile phone market."

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