Apple has painted itself into a lucrative
corner. In its last two quarters, revenue rose by 70 and 80 per cent year-over-year, respectively. Earnings per share expanded still faster. Because the good times have made the company vast by any standard (it is expected to have more than $100bn in revenue this year) the question is how much, not if, growth is going to decelerate in coming quarters. When the company reports, later on Tuesday – and for several more quarters to come – investors should be alert for any clue
s about how management will handle this transition from absurd to merely exceptional growth.
When any tech company’s growth rate declines, unit prices come into focus. Apple has a remarkable record to maintain here. Revenue per unit for the iPhone, no longer a new product after four years on the market, has been solidly above $600 for the last year. More impressively, prices for the grizzled iPod and even personal computers (remember those?), have held up as well. How long can this continue?
Next to be scrutinised: gross margins. Assuming pricing stays firm, can Apple continue to translate massive volumes into low component costs, keeping gross margins steady? Apple’s management has guided analysts to expect a modest gross margin contraction, from 39 per cent a year ago to 38 per cent, but has set this bar low in the past. Another big beat would be cheered.
Of course, if Apple simply blows out volume expectations for iPhones and iPads this quarter (Citi research puts analysts’ consensus at 17m and 7.5m units), that will give margins an inevitable
boost and could make pricing look less important. It is only a matter of time, however, before Apple’s sheer size forces the markets to attend to the gritty details of how cheaply it can make and sell its products, before looking at the amazing momentum in the top line.