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Higher development costs suggest new products that will thrill users but initially lessen earnings
By John Boudreau
San Jose Mercury News
Published on Thursday, Aug 07, 2008
When Apple announced last month that it anticipated higher development costs in coming months, analysts cringed and the stock dropped. But tech heads rejoiced.
Such a message often means new products are coming from the company.
Apple Chief Financial Officer Peter Oppenheimer told analysts that a ''future product transition'' will lower gross margins from nearly 35 percent during the quarter that ended in June to about 30 percent in 2009.
While that news cast a shadow over Apple's stock, it generated excitement in the blogosphere, as Apple acolytes played their favorite game of name the company's next big — or small — thing.
As usual, Oppenheimer was cryptic, saying only ''we're delivering state-of-the-art products at price points that our competitors can't match.''
He added that one of the investments is ''to introduce new products that initially cost more because they deliver an entirely new level of value to the customer. . . . We have some of these types of investments in front of us that I can't discuss.''
Analysts say the mystery could be a refresh of Macintosh laptops, a new architecture for its PC line, a new mini-laptop or a completely new product. However, it could be a stretch for Apple to roll out an entirely new product any time soon, given its struggle to keep up with demand for its new iPhone 3G.
Whatever the surprise is, Apple is likely to roll it out in early fall to take advantage of the holiday shopping season.
''Normally, when they introduce a new category, it
takes some upfront development costs,'' said longtime Apple watcher Tim Bajarin, president of Creative Strategies. ''I believe when they introduced the early iPods, they said something similar about impacting the margins. It appears they have something really new in the works.''
In a research note to investors, Piper Jaffray analyst Gene Munster said he expects Apple to offer up a redesign of its MacBook laptops and possibly offer them at lower prices. Its lowest-priced laptop retails now for $1,099. He also anticipates new iPods and perhaps a lower-cost iPod touch player.
Jennifer Colegrove, an analyst with iSuppli, is convinced Apple is cooking up a new touchscreen mini-laptop. Sales of touch-screen technology, popular with handheld devices such as the iPhone and iPod touch, are expected to double between now and 2013, becoming a $6.4 billion industry, she said in a new report.
Colegrove believes Apple might unveil a 7- to 10-inch laptop, joining the many other PC companies that are offering relatively low-cost and lightweight laptops.
''If you look at Apple's products — the iPhone, the iPod touch — what's next?'' she said. ''It's natural that you'll see (touch technology) with notebook computers.''
Other analysts, though, aren't convinced Apple, which has done well with higher-priced PCs, is willing to enter the low-margin mini-laptop market.
''Historically, Apple has not been a company willing to sacrifice margins,'' said John Jacobs, director of notebook market research at DisplaySearch.
He expects Apple to aggressively transition from laptop displays with fluorescent lamps to ones with light-emitting diodes, or LEDs, which contain no mercury, are less of a drain on batteries and could lead to slightly slimmer notebooks.
They are also more rugged and provide brighter screens. All PC companies are expected to use LED technology by 2015, Jacobs said.
When Apple announced last month that it anticipated higher development costs in coming months, analysts cringed and the stock dropped. But tech heads rejoiced.
Get the full article here.
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