Apple has been talking about a secret product transition that will hit gross margin, and Credit Suisse analyst Bill Shope thinks he knows what it is: He thinks that Apple (AAPL) will refresh its iPod line and reduce prices in order to reduce cannibilization from the iPhone:
Price cuts make strategic and financial sense. We believe the iPhone will inevitably cannibalise iPod sales over time. With iPod price cuts, Apple is choosing revenue over unit cannibalization, preserving the growth in its combined iPod and iPhone installed base. We believe this “cannibalization management” maximizes the long-term gross profit trajectory for the company.
Shope anticipates a 22% price reduction year-over-year for the December quarter, which he thinks will result in lower gross profit. Every 100 basis point price decline reduces Apple’s gross on iPods by 4%, says Shope. He reiterates his $200 price target on Apple and Overweight rating.
Business Insider Emails & Alerts
Site highlights each day to your inbox.