When reporting results for its latest quarter on Thursday, Apple Inc. said it expects its profit for the holiday quarter to below last year's results for the same period. Chief Financial Officer Peter Oppenheimer was asked to explain the background on a conference call with analysts.
QUESTION: What's driving the significant down-tick in gross margins in the December quarter?
RESPONSE: This is the most prolific product period in Apple's history. We have an unprecedented number of new product introductions over the last six weeks and this has led to record levels of demand. New or repriced versions of our products announced during this time frame represent over 80 percent of the total expected December quarter revenue.
But there are costs associated with such dramatic change and demand. The iPhone 5, iPad Mini, iMac, MacBook Pro 13-inch, iPod Touch and iPod Nano have completely new form factors with great new features and we've never before introduced so many new form factors at once. All of these products have higher costs than their predecessors and therefore lower gross margins as they are at the height of the cost curve.
This has been the case with new products in the past, so nothing new. The difference this time is the sheer number of new products we are introducing in a very short period of time. Additionally, we lowered the price of the iPhone 4S and iPhone 4, delivering incredible value to our customers. We headed into this holiday quarter with the strongest iPhone lineup that we have ever had with the iPhone 4 starting at free in the subsidized markets. We also added the iPad Mini to our iPad lineup. The iPad Mini has the full iPad experience and we priced it aggressively at $329, delivering incredible value to our customers. Its gross margin is significantly below the corporate average. So in summary, we expect our gross margin to decline by about (4 percentage points) sequentially.