Apple Inc. (AAPL) December Quarter Guidance Explained: Barclays

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Apple Inc. (AAPL) December Quarter Guidance Explained: Barclays

Apple Inc. (NASDAQ:AAPL)’s guidance of a weaker than expected December quarter can be understood by examining the company’s margins. Barclays Equity research analyst, Ben A. Reitzes, expressed that he was not surprised by the outlook provided by the company when it released its FQ4 earnings results. The analyst points out that this has been the same old scenario whenever Apple Inc. (NASDAQ:AAPL) did a product overhaul. Nonetheless, the iPhone maker is expected to recover during the following two or three quarters, by registering improved margins.

The other thing that contributed to Apple’s weak guidance for the December quarter is the investor attention which has turned to the company’s recent turnover among the executive team, as covered in one of our earlier articles. Chief executive Tim Cook, performed what many perceive to be an act of replacing the old team with his own team at the top, and of course investors are sceptical of the outcome.

Source: Barclays Equity Research

The iPhone maker is expected to register EBITDA margin of 35.2 percent during for the year 2013, down from 37.4 percent reported in 2012. However, this margin will improve for years, to follow with 36.3 percent in 2014, and an even better performance of 37.5 percent in the year 2015, while the average is expected at 36.6 percent.

However, net margins are expected to remain below the level achieved during 2012, which was reported at 26.7 percent; the closest to this arriving during 2015, at 25.7, while next year is expected to register 24.6 percent in net margin.

Apple Inc. (NASDAQ:AAPL)’s performance margins, namely, Return on Equity (ROE), Return on Investment Capital (ROIC), and Return Assets (ROA) margins are expected to slump further in the consecutive years following 2013, contrary to what is exhibited in the profitability margins.

The analyst also noted that the gross margins are expected to be poor in the December quarter, but will improve during Q2 and Q3, 2013, before slumping in Q4 2013. Ideally, Apple Inc. (NASDAQ:AAPL) has two great quarters in its financial calendar, while the other two are somewhat lackluster.

One major reason for the decline in margins in the December quarter is due to the high costs incurred in product development. Additionally, Apple Inc. (NASDAQ:AAPL) updated its four major product lineups within two months, and introduced the iPad mini, which further adds to the cost of production.

The improved profitability margins after the December quarter come as a results of increased sales units, as compared to reduced cost of producing the new products.

Barclays PLC (LON:BARC) (NYSE:BCS) research equity analysts maintain their overweight rating of Apple Inc. (NASDAQ:AAPL) stock, with a price target of $800 per share, and also retain their neutral outlook of the industry.

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