Apple's Margin Massage

Like many analysts who cover the company, Prudential analyst Jesse Tortora is expecting some upside in the September quarter, but he describes himself as cautious regarding December's outlook. Indeed, his target price is just $74, or 29 cents lower than Tuesday's closing quote.

One reason for his guarded outlook is concern over margins. Apple recently cut prices on both its iMac and iPod lines, and faces rising component costs.

Apple's third-quarter results were driven by the resurgence in sales of its Macintosh computers. Those sales jumped 19% year-over-year in the quarter to $1.87 billion, resulting in the strongest revenue growth for the company's computer business in the last three quarters. Apple ended that quarter with a backlog of orders for its new Macbook consumer notebook.

The company believes that many of its professional customers were holding off buying a new system until Apple completed the update of its professional desktops with Intel(INTC Quote) chips.

Apple announced early in September that it was replacing the Core Duo chips within its iMac line of consumer desktops with Intel's latest processors, the Core 2 Duo line.

Additionally in September, the company introduced new top-end and low-end iMac models and hewed prices on the two previous versions of the all-in-one computer.

As for the iPod, the informal sell-side consensus for iPod sales is about 8.6 million units. However, that level confirms a slowing in the growth of the most-popular digital music player, which has now shipped at a similar level for three straight quarters. In last year's third quarter, the company shipped about 6.5 million of the devices.