Gross margin

Chart of the day: Apple's shifting gross margins

October 8, 2013: 10:32 AM ET

Wells Fargo's Maynard Um forecasts that Apple's GM could reach 40% by March.

Click to enlarge.

Click to enlarge.

FORTUNE -- For Fortune's 20th consecutive Apple (AAPL) Earnings Smackdown, we've started to collect estimates for fiscal Q4 2013 from our roster of professional and amateur analysts. The actual results are coming later than usual this year; Apple's fiscal 2013 ended on Saturday Sept. 28., and the results won't be known until Monday Oct. 28.

In the numbers we've seen so far, the conservative pros and the more bullish amateurs are in closer alignment than in the past. Their biggest disagreement is over Apple's gross margin, a measure of the efficiency with which the company turns sales into profits.

The average GM estimate among the professionals is 36.8% -- the high end, per Apple's latest SEC advisory, of the 34-37% guidance the company offered in July.

The average among the amateurs is 37.4% -- above the top of Apple's range.

The attached chart comes from Wells Fargo's Maynard Um, who addressed the gross margin question Tuesday and offered some bullish forecasts for the next two quarters:

iPhone launch quarters typically have accounting headwinds that ease in "s" cycles; historically, "s" versions drive better gross margins. Historically, the quarter of an iPhone launch has seen accounting gross margin headwinds (which, in our opinion, makes Apple's September quarter gross margins more impressive). If our accounting reversal assumptions are correct and assuming 5s/c mix goes to two-thirds of iPhone volumes, we believe December corporate gross margins could be 39.6% (versus our 38.3% estimate)--or $0.56 in incremental EPS--without calculating any potential incremental benefits from deferred margin on component sale or warranty accruals.

The March quarter could see even greater upside potential as warranty accruals have typically seen material decreases per unit in the third quarter following an "s" version launch, which could lead to the March quarter corporate gross margin hitting 40% (versus our 38.5% estimate)--a level not seen since September 2012. While the reversals of these can vary, if we just take a holistic step back, we note that gross margins have gone up by an average of 225bps in the two quarters of launch in an "s" cycle versus the two quarters of launch in a new form factor iPhone where gross margins have decreased by an average of 225bps. Gross margin improvements, particularly if they get to 40%+ would, in our opinion, dispel high-end smartphone commoditization fears.

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