Apple warns of holiday earnings drop

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Apple has a new iPhone, two new iPads and three new PCs as it heads into the holiday quarter, the biggest selling season of the year.  (Reuters) Apple has a new iPhone, two new iPads and three new PCs as it heads into the holiday quarter, the biggest selling season of the year. (Reuters)
SummaryApple has a new iPhone, two new iPads and three new PCs as it heads into the holiday quarter, the biggest selling season of the year.

Apple has a new iPhone, two new iPads and three new PCs as it heads into the holiday quarter, the biggest selling season of the year. But, paradoxically, it expects these new gadgets to bring down its profits compared to last year. The reason: the new gadgets are expensive to make, Apple executives said Thursday, and the company is not interested in cutting corners for the sake of short-term returns.

On top of the holiday-quarter warning, the company reported earnings for its just-ended quarter that missed Wall Street's expectations for the second quarter in a row – something that hasn't happened in more than a decade.

In part, the issues facing Apple are a normal consequence of having so many new products, said Chief Financial Officer Peter Oppenheimer. When a production line is new, it costs more to run and the components are more expensive.

“The difference this time is the sheer number of products we're introducing at a short time,'' Oppenheimer told analysts on a call Thursday.

But Oppenheimer also singled out the iPad Mini, the new, smaller version of the iPad the company unveiled Tuesday. It starts at $329, well above the $199 competitors charge for similar products. Apple's price is ``aggressive,'' with a margin well below its other products, Oppenheimer said.

``When we set out to build the iPad Mini, we didn't set out to build a small, cheap tablet, we set out to build a smaller iPad that offered the full iPad experience'' Oppenheimer said.

Apple expects a gross profit margin of 36 percent in the current quarter, the lowest figure in at least four years. In the holiday quarter last year, its gross margin was 44.7 percent.

The gross margin represents what Apple gets from selling its products, minus the cost of making them. It ignores the cost of research and development, marketing and corporate overhead.

On the same call, CEO Tim Cook justified the projected profit drop to Wall Street in similar terms.

"We're unwilling to cut corners in delivering the best product experience in the world,'' he said. "We're managing the company for the long run.''

Apple launched the iPhone 5 a month ago. This week, it unveiled the iPad Mini and an upgraded full-size iPad, plus a new MacBook laptop and two desktop Macs.

Apple said it expects earnings of $11.75 per share in the

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