This column originally appeared on Real Money Pro at 7:31 a.m. EDT on Oct. 26.
NEW YORK ( Real Money) -- By now, most know that Apple (AAPL - Get Report) reported in-line quarterly revenue and profits but provided weak guidance on gross margin (36% to 37%) and earnings ($11.75 a share). Though the company is a sandbagger by nature, the EPS guidance would represent the first year-over-year profit decline in many years. The decline in gross margin was explained by the broadest product refresh in the company's history -- the costs of the new products are higher than the previous menu -- with new products expected to account for about 85% of the December quarter's sales.
At issue is whether the gross-margin turndown is a function of the need to produce lower-priced products in order to maintain its growth curve and product demand. Will the next quarter represent the nadir in margins, and will yields improve as the company navigates the cost curve successfully (as it did following the iPhone 4 launch in 2010)?
Supply concerns seem to have be answered (no component constraints), and the international carrier rollout is on schedule. Cook said backlog is "significant." But nothing was discussed regarding the next new thing (e.g., Apple TV).Bullish take:
- The company set the bar low (and met that bar).
- The P/E and price/sales multiples are low.
- It's a great company.
- People like its products.
- Some will play for a Christmas rally.
- The company had to set the bar a lot lower than people thought to be comfortably beatable.
- Three quarters in a row with declining margins, even with iPad Mini priced 30% more than competition -- never buy a tech stock with declining margins and that is very overowned.
- Apple is not the fairest of them all anymore -- even Lebron James is using Samsung Galaxy now.
- Though some might play for a Christmas rally, a lot of hot money will exit at the slightest concern.
- Importantly, while Wall Street research reports this morning will call this quarter's guidance as representing the bottom for gross margin, recognize that even current depressed gross margins are still substantially higher than normal for the industry and its competitors.