This chart from Benedict Evans of Andreessen Horowitz has the Apple bulls feeling pretty good this morning. After multiple quarters of margin declines, Apple has stabilised, and even grown its margins.
“Apple’s performance in the margin department was one of the best over the past couple of years relative to our estimates, driven by stronger-than-expected cost improvements and solid product quality,” said Brian White of Cantor Fitzgerald. “For example, Apple delivered 3Q:FY14 gross margin of 39.4%, much better than our 38.0% estimate and the company’s outlook of 37% to 38%.”
Katy Huberty at Morgan Stanley says Apple’s gross margin was the “highlight” of the quarter, and it “removes the margin bear case.”
This was one of those problems that dogged Apple. Nobody believed it could maintain its margins. As the margin compressed last year, the stock fell. When the margin falls, do Apple’s profits.
Clearly, Apple has eliminated the margin concerns. Gene Munster of Piper Jaffray says this will help Apple’s stock in the quarters to come. He’s expecting further margin compression as the iPhone 6 rolls out.
However, he says, “We believe the strength in gross margin in the June quarter will serve as a reassuring data point for investors as we enter what will likely be a couple quarters of sequential declines in gross margin.”