The problems experienced manufacturing the iPhone 5 are expected to affect Apple’s gross margins in the near future, as the company is expected to absorb some of the costs associated for quality control for their newest device.
Ahead of this Thursday’s Apple quarterly earnings report, analyst Shaw Wu with Sterne Agee said he expects “vintage conservative” guidance from the company ahead of a big holiday quarter. The key reason for that expectation, he said, is he believes Apple will partially absorb quality control costs associated with the iPhone 5.
Wu estimates that Apple’s near-term margins will be between 40.5% and 41.5%, lower than the Wall Street consensus of 42% to 43%.
The prediction comes after an unnamed Foxconn official said that Apple’s assembly partner has found the iPhone 5 to be the most difficult device the company has ever assembled. The complex design has led to quality control problems, which has led to lower yield-rates.
Wu also thinks Apple’s margins will be pushed lower by the highly anticipated launch of the “iPad Mini.” Apple could sell the smaller iPad at a lower margin than its full size iPad models, allowing the company to achieve a lower price point, and thus steal market share from competitors like Amazon’s Kindle Fire HD, and the Google Nexus 7.