Apple Inc.’s profit margins are falling back to levels not seen since sales took off after the 2007 debut of the iPhone, as competition and lack of breakthrough products pressure the company to lower prices.
Concern over falling margins helped prompt a 33 percent decline in Apple shares from a record high of $705.07 on Sept. 21, making it the worst-performing stock in the Standard & Poor’s 500 Index in the same period. Last week, Apple said the board and management are discussing the return of more money to shareholders, after a proposal by Greenlight Capital Inc.’s David Einhorn to pay out more of its $137.1 billion in cash and securities, possibly with higher-yielding preferred stock.
Apple is also seeking new customers in China, where it will be harder to charge premium prices. New products such as the iPad mini are also being priced at relatively lower points, eating into margins.
After Apple on Jan. 23 reported its slowest profit growth since 2003, more than 20 analysts lowered their price targets. While Cook made it clear on the earnings call that he’s not considering any major strategic shifts, he promised that Apple was developing several new products.
“They need to do something eye-opening, but nothing is going to have as high a margin as the iPhone,” said Erick Maronak, chief investment officer at Victory Management Inc. Apple’s gross margin could easily shrink to 35 percent, he said.