Apple Inc. (NASDAQ:AAPL) released its latest financial information last week, and analysts are digging deeper into the details to fine tune their projections. BMO Capital analysts Jung Pak and Gaurav Gupta took a closer look at the company’s gross margins and how warranty expenses affected them in the September quarter.

Apple AAPL

Apple sees impact from warranty expenses

The analysts note that Apple Inc. (NASDAQ:AAPL)’s warranty expense rose from 2.1% of revenue in the June quarter to 3.7% in the September quarter. That was a negative quarter over quarter impact to gross margins of around 160 basis points. The analysts report that warranty expense has averaged 3% of revenue over the last four quarters, compared to 2.2% over the past eight quarters.

For the December quarter, they expect to see warranty expenses be neutral to a slight tailwind for gross margins. Net, they’re looking for gross margins of 37.2% for the December quarter, compared to Apple’s guidance of between 36.5% and 37.5%. Apple recently announced that it was deferring more of its revenue than it did previously, and BMO analysts believe this change will be up to a 100 basis point impact to Apple’s gross margins quarter over quarter. They suggest it will be offset by a slight tailwind from warranty expense.

BMO maintains its Outperform rating

The analysts continue to rate Apple Inc. (NASDAQ:AAPL) as Outperform with a $600 per share price target. They named three possible catalysts for the company’s stock in the not-too-distant future. First, they still expect to see an announcement about the iPhone launching on China Mobile’s network. They’re looking for that sometime during the March quarter.

Second, they expect to see an iPhone with a bigger screen in the June quarter, and third, they’re expecting Apple Inc. (NASDAQ:AAPL) to enter into some new product categories, like the smart watch category. However, they have not factored a new smart watch into their model for Apple.