Apple is set to report its fiscal-first quarter earnings on Wednesday and analysts are predicting a decline in profits for the iPad maker after Apple warned its profit margins would come down due to higher costs tied to all of its new products, including the iPhone 5 and the iPad mini.
Analysts expect the company to report fiscal first quarter earnings of $13.41 per share, compared with $13.87 a year ago. A drop in profits for Apple would mark its first profit decline in nine years; however, the company is notorious for issuing conservative guidance and then blowing away estimates.
Analysts are also predicting Apple’s profit margin will have dropped to about 38 percent from 45 percent a year earlier due partly to higher costs related to the iPhone 5. In a research report Friday, UBS analyst Steven Milunovich says he sees Apple’s gross profit margin trending down from the current 40% to the mid-30% range longer term. That’s partly because the iPhone 5 was a complete hardware overhaul from previous versions and involved new components and a new design.
Investors are also concerned that the iPad Mini is hurting Apple’s profit margins, not just because it cost a lot to develop, but because it is taking sales away from the company’s iPad, which is a more profitable product.
Share of Apple dropped below $500 per share last week on news that iPhone 5 demand was lower than expected. Apple had reportedly asked Japan Display, LG Display and Sharp to roughly halve supplies of LCD panels for the iPhone 5 from an initial plan for 65 million screens due to a decline in demand, according to Nikkei.