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The Biggest Fear for Apple Investors

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If you're an Apple (NASDAQ: AAPL  ) investor used to obsessing over the company's newest products or market share in key categories such as smartphones and tablets, the new area of focus around the company have taken a turn to the deep corners of finance: Apple's gross margin is now the most closely followed area for investors.

The problem is that rising sales combined with decreasing margins can sap earnings growth for companies even as their products continue gaining momentum. As an example, between 2005 and 2008, Dell (UNKNOWN: DELL.DL  ) rode rising PC sales to a 24% boost in sales, yet pricing pressures led to declining profits over that time.

The largest fear for Apple investors has turned to whether the company will keep growing sales across the coming year, while they see its profits decline from the year before as margins sit well below where the were in the previous year. As tech analyst Eric Bleeker notes in the following video, the unique qualities of being Apple means the company won't compromise on the build quality of its devices. As smartphone competition heats up and Apple looks for ways to stay ahead of the competition, that probably means Apple won't again achieve its peak gross margins of 47.4% from last March.

That's not to say Apple can't grow profits again, especially as it hits "easier" gross margin comparisons later this year, but it does mean if you're an Apple investor, you'll need to shift your analysis to include gross margins as you're watching their results across the coming year. To see Eric's full thoughts, watch the video.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. Eric is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

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  • Report this Comment On January 25, 2013, at 12:45 AM, amaradio wrote:

    People really need to stop caring so much about gross margins. In Apple's case, they are seemingly insignificant when you profit $13.1 billion. I would much rather have profited $13.1 billion in 13 weeks than have high margins. And for those so called analysts that are saying Apple will hit $200-$300, are you kidding me? Their cash on hand will be nearly half of their market cap! Stop trying to make people panic and be realistic. Investors have overreacted and sold Apple in unfathomable numbers. Are they worth $705 a share? Absolutely not and they will never be until they invent a new product. Apple Tv will be it and it will revolutionize TV. I am still bullish on Apple and my 3-month target is $500, 6-month target is $540, and 1-year target is $575. Cook, please buy back shares when they are this cheap and offer shareholders (if there are any left) a special dividend. Do something brotha!

  • Report this Comment On January 25, 2013, at 1:09 AM, lakawak wrote:

    Apple won't compromise on build quality? You mean, they will keep making inferior products and sell it at a higher price?

    amaradio...the point is...they had those record profits SOLEY becuase they had a new product launch ANd the holiday sales. Take those away and hteir profits are down. Big time. And thngs are not going to get better any time son. the iPhone's market share is falling fast. As is the iPad. The fact is, the "smug" factor of Apple is gone. so no, people are no longer willing to pay more for less. since Andorid devices do everything people want and at a lower price, they are taking over the market.

    Apple thrived on smug. The smug is gone.

    They already failed once without Steve Jobs. And Tim Cook is clearly no Steve Jobs in his ability to sell crap at a premium price.

  • Report this Comment On January 25, 2013, at 3:06 AM, Orcarr wrote:
  • Report this Comment On January 25, 2013, at 7:35 AM, 2sour wrote:

    Interesting input, lakawak ...

    Take away Samsung's new products and holiday sales ... where are they?? Take away any tech companies new products and holiday sales ... where are they?? This must be some kind of new financial analysis that I haven't heard of.

    The fact is ... Apple sold over 47 million phones last quarter (more than ever) and they've barely begun selling in Asia. They made HUGE profits, but didn't meet "analysts expectations". I'd say the analysts need an analyst ... nobody but the analysts seem to expect Apple to continue growing at such an unrealistic rate.

    Apples profit margin beat Google, IBM, Exxon, ... the list goes on. Yeah ... they're just about dead.

  • Report this Comment On January 25, 2013, at 9:51 AM, tprooney3 wrote:

    Apple is currently priced as if their next product they roll out will be the i-BetaMax VCR or something equivalent. And I ask you--when have the 10,000 panicking monkeys that constitute the stock market ever been wrong before?

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