Some Analysts Worry that Apple’s Expectation Beating Earnings was Too Impressive

There were worries expressed by some analysts about whether Apple is selling too many of its lower cost iPhone SE model and needs to diversify its current portfolio of smartphones following the US tech company’s forecast-beating earnings that were announced on Tuesday.

“Margins went down, they sold a lot more iPhones SE than they had expected to, and Apple needs to be very careful of that,” Moor Insights & Strategy’s Patrick Moorhead told CNBC.

On revenues of $42.4 billion, earnings of $1.42 per share were reported by the technology giant. These earnings were lesser than the comparable year-ago figure of $1.85 per share on $49.61 billion in revenue despite the fact that the current results beating estimates. The shipment of iPhones in the third fiscal quarter was also above estimates and reached 40.4 million.

The strategy of launching the lower cost iPhone SE was working and attracting customers to Apple’s ecosystem, said the chief executive Tim Cook in a conference call. However some suggest that a popular cheaper model means tighter margins and less consumers buying the more expensive products as they are wary of this bright spot in teh report.

“(They were) very good numbers. However, they show that Apple needs to do something else,” Francisco Jeronimo, research director for European mobile devices at analysis firm IDC, told CNBC.

“The price point shows that they need to do something else in terms of the entire (iPhone) portfolio because the market is not growing anymore. And if it’s not growing, or even if it’s only growing in emerging markets where most consumers cannot afford the top of the range, they need to move towards lower price ranges and that’s basically what the iPhone SE did this quarter to Apple,” he added.

“They sold more iPhones SE than iPhone 6 or 6s which is a very strong indicator that they need to do something in that space,” he said.

A much “better balance” for profit margins at the Cupertino, California-based company could be possible if Apple releases a next-generation iPhone 7 this year, believes Moorhead.

“They need to watch it very closely as the SE is a drop,” he said.

There have been reports in the media that as early as September, this new top of the model could be released by Apple. A tweet saying the latest iPhone iteration would be released the week of September 12. Apple has given no overt indication that it’s planning an event was posted on early Saturday by Evan Blass, a prominent Apple watcher with an accurate track record of predicting the tech giant’s releases.

With a slew of price upgrades overnight, Wall Street had a more optimistic take on Apple’s earning. According to Reuters, the price target on Apple was raised to $107 from $105 by JPMorgan. Maxim Group raised its projection to $173 from $168 and Macquarie upped its target to $115 from $112.

Apple appears to be fairly supply-constrained on the iPhone SE handset, believes Morgan Stanley’s equity analyst Katy Huberty who isn’t as concerned on overall margins. These new results and guidance would push the “margin debate to the back burner”, she said in a new research note overnight

“June quarter gross margin came in at the high end of the guidance range despite higher than expected channel inventory reductions as COGS (cost of goods sold) were better than expected due to component cost declines and better product quality,” she said.

(Adapted from CNBC)

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