Apple’s margin squeeze has no easy fix amid 33% share drop

Faster Cycles

Apple may also be speeding up the frequency as well as the variety of its product introductions, to prevent Samsung and others from grabbing share while Apple plans its next blockbuster annual announcement, according to Walter Piecyk, an analyst at BTIG LLC. That may explain Apple’s decision to revamp all of its main products -- iPhones, iPads, Macs and iPods -- in the second half of 2012.

More frequent product introductions and a longer service life for older devices will complicate Apple’s formula of selling a handful of products in massive volumes, and churning out profits over time by driving down costs. The shorter the gadget’s life, the less time to maximize income, said Piecyk.

Apple is also finding it more difficult to forecast demand and prepare its supply chain as the variety of devices expands. Apple uncharacteristically produced too few iPad minis, iPhone 4s and iMacs during the last quarter, according to Ben Reitzes, an analyst at Barclays Capital Inc.

Profit Goal

“Manufacturing issues seem to be occurring in so many products these days,” Reitzes wrote in a research note.

With revenue projected to rise 17% to $182.9 billion in the current fiscal year, the trick for Cook will be to refocus investors’ attention to dollar profit instead of margins, said Yoffie. At that rate of growth, Apple would reach $400 billion in annual revenue by 2020 -- more than $1 billion a day -- and be able to churn out far more actual dollars of profit, even if margins decline.

“Apple’s goal should not be to maintain their margins, but to increase sales and increase profits,” said Yoffie. “Apple allowed expectations to get way out of line. They let people think it could grow as it has in the past.”

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