Declining iPhones gross margins threatens to pile more pain on Apple Inc. (NASDAQ:AAPL), which is already struggling with declining sales. Margins have reportedly shrunk from highs of 57.7% as of 2009 to lows of 40.85% all but affirming the fact that it is becoming extremely expensive for the iPhone maker to develop one of its most important products.
Shrinking Gross Margins
Analysts at Bernstein Research are now warning that margins could shrink even further as the tech giant moves to pack more high-end futures in a bid to reinvigorate tanking iPhone sales. With the cost of manufacturing iPhones only expected to continue rising, margins could shrink to 39% according to the analysts.
Increasing prices of devices is no longer a consideration as one of the ways of boosting margins. Such a move would only spell more trouble for Apple given the flooding of the market with all kinds of devices, packing all the talked-about high-end features.
Toni Sacconaghi an analyst at Bernstein believes the margin’s standoff could become a bigger problem going forward.
“We believe that GMs [gross margins] will potentially become a larger issue as we approach the iPhone 8’s release. The devices’ new form factor, OLED screen and increased functionality (wireless charging) will invariably drive up iPhone’s BOM [bill of materials], either necessitating a further price increase in the device, or potentially pressuring gross margins in FY 18,” said Mr. Sacconaghi.
Production Cost Concerns
Rising production costs could significantly eat into the company’s earnings given that the same would only affect the return on investment on the iPhone Plus that normally brings in more money.
There has also been talk that the company is planning to move iPhone production into the US from China. The news has especially gained momentum in the wake of Donald Trump wining the U.S election on the promise he will push US companies to build their products in America.
Apple moving iPhone production works to the U.S can only happen if such a move has the potential of curtailing a further increase in production costs.
Apple Inc. (NASDAQ:AAPL) stock was up by 1.52% in Monday trading session closing the day at a high of $111.73 a share.