Q3 2009

How to predict Apple's gross margins

July 18, 2009: 9:14 AM ET

Gross marginsApple's (AAPL) fiscal third quarter earnings are due out Tuesday, July 21, and once again the Street is focused on the big numbers -- revenues, earnings and units sold for the Mac, iPhone and iPod.

But savvy analysts will be paying closer attention to the number that is the best measure of a firm's profitibilty: gross margin, expressed as the ratio of profits to revenues. Or

(Revenue - Cost of sales) / Revenue

Apple's gross margins, which have averaged 34.8% over the past eight quarters, are the envy of the industry. Dell's (DELL) first quarter GM, by contrast, was 17.6% and the company warned Wall Street last week that it is expecting a "modest decline" next quarter.

In its April earnings call, Apple low-balled its guidance numbers as usual, forecasting a sharp drop in gross margins over the next 6 months. Specifically, it warned analysts to expect no better than 33% in Q3 and "about 30%" in Q4.

But Turley Muller, for one, doesn't buy those numbers, and he should know.


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