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Japan woes force scrutiny of Apple's margins
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By Poornima Gupta
SAN FRANCISCO (Reuters) - Apple Inc may provide the first signs this week that the Japanese crisis is pressuring margins, clouding what should otherwise be another dazzling second quarter for the makers of the iPad and...
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A staff member holds the new Apple iPad2 at the Apple store in London March 25, 2011.
Credit: Reuters/Luke MacGregor
By Poornima Gupta
SAN FRANCISCO |
Tue Apr 19, 2011 7:26am EDT
SAN FRANCISCO (Reuters) - Apple Inc may provide the first signs this week that the Japanese crisis is pressuring margins, clouding what should otherwise be another dazzling second quarter for the makers of the iPad and iPhone.
Wall Street has been afire with speculation of how a shortage of crucial components from Japan, which provides more than a 10th of global electronics components, might swell costs and constrain supply -- particularly of the marquee iPad 2 launched in March.
With Silicon Valley magician Steve Jobs, a pancreatic cancer survivor, still sidelined indefinitely on medical leave, some analysts warn the Japanese disruption will shave points off Apple's gross margins for the rest of this year.
"The earnings are going to be really great. We are looking to see how they address the supply chain issues in Japan," said Wedbush Securities analyst Scott Sutherland. "They are getting the components, but at higher prices."
Apple could see its margins decline by 200-300 basis points in the June quarter, Sutherland said, adding the pressure could continue into the September quarter as well.
"They do have the margins to absorb it whereas a lot of their competitors don't," he said.
Investors are also curious to see whether the faster, thinner iPad 2 can outpace sales of the original, of about 1 million units in 30 days.
Analysts expect second-quarter earnings to showcase Apple's domination of the rapidly growing tablet market.
The main drivers of growth, apart from the iPad, include the ever-popular iPhone, which was also available on the Verizon network during the past quarter, and the refreshed MacBook Pro computer that began shipping in February.
Analysts are estimating sales of about 6 million iPads in the fiscal second quarter, alongside about 16 million iPhones and 3-4 million Macs.
But the biggest question for Chief Operating Officer Tim Cook and other executives on Wednesday would be how much Japan would affect sales for the rest of the year. Apple is a voracious consumer of touchscreen displays and flash memory, among other components most heavily affected by the Japanese tsunami.
Apple's weak spot in recent months has been gross margin. And Wall Street is forecasting a gross margin of just over 39 percent, down from 41.67 percent from the previous period.
Apple is famously conservative with its forecasts, but investors will pick apart executives' comments this week for their views on Japan, plus seek answers to persistent questions over Jobs' continued absence and his role now.
They would also seek any indications of timing for the return of Jobs, who had led Apple from near-bankruptcy to become the world's most valuable technology company.
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