John Paczkowski

Recent Posts by John Paczkowski

iPhone 5 Costs May Be Eating Apple’s Gross Margins

How much longer can Apple maintain the high margins it has long commanded for devices like the iPhone? Not much longer, says Pacific Crest analyst Andy Hargreaves, who believes the company’s gross profit per device has risen as high as it will ever go.

Hargreaves says the cost of goods sold for an iPhone 5 is higher than expected — about $370 (seems a little high, no?) — and he figures that will trim Apple’s overall gross margin for the December quarter to 38.8 percent from 40 percent. “Apple’s gross profit per unit has likely peaked,” Hargreaves theorized in a research note to clients. “Declining gross profit dollars per iPhone and volume sales of iPad are driving lower gross profit per unit of Apple product sold.”

That may well be the case. In the third quarter of 2012, Apple’s gross profit per unit declined for the first time since the iPhone was introduced. And Hargreaves believes it will probably decline further through the end of fiscal 2013. With that in mind, he trimmed his target on the company to $645 from $670.

“Apple will have to sell more devices in order to maintain earnings,” Hargreaves explained to AllThingsD. “What happens now: I believe Apple should continue to try to gain share in the near-term, but ultimately should accept the limits of its market or come up with a new $100 billion product or service to drive growth.”

That said, Hargreaves remains bullish on Apple, noting that demand for the company’s products remains strong. “Checks suggest iPhone 5 is outselling its closest competition (which is iPhone 4S in some cases) by more than 4X,” he wrote. “Meanwhile, the iPad continues to sell very well in a bad consumer demand environment, and we expect iPad Mini to expand the addressable market.”


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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus