While warning that its profit margin will fall in the coming quarter, alarming investors, Apple is indicating that it has something really juicy to introduce before the end of September.
The tease came Monday as Peter Oppenheimer, the Apple chief financial officer, explained why the company expected its gross profit margin to drop from 34.8 percent in the three months that ended in June to 30 percent in the current quarter. That caused a sharp drop in Apple's stock price in after-hours trading on Monday.
One reason for the narrower margins is a promotion that gives free iPods to students who buy new Macintosh computers. But another is what Oppenheimer called "a future product transition, which I can't discuss today."
Apple is widely expected to be getting ready to refresh its line of notebook computers, and there is some speculation that it may introduce a new kind of device that is smaller than a laptop but larger than an iPhone. In several ways, Apple executives hinted that this new product would compete aggressively on price with rival devices.
"We will deliver state-of-the-art new products that our competitors just aren't going to be able to match," Oppenheimer said during a conference call with analysts, responding to a question about the lower profit margin targets. And several times Tim Cook, the chief operating officer, outlined Apple's evolving pricing philosophy.
"One of the investments we make is to introduce new products that initially cost more because they deliver an entirely new level of value to the customer," Cook said. "Then we ride the cost curves down with value engineering and volume manufacturing, leaving us far ahead of our competitors. We have some of these types of investments in front of us that I can't discuss."
For years, Apple pursued a premium pricing strategy, reflecting its status as a niche vendor. The music player business, in which Apple has the dominant market share, moved the company toward a more mainstream pricing philosophy.
The warning Monday "has to mean significant price changes in one of their major products," said A.M. Sacconaghi Jr., a securities analyst with Sanford C. Bernstein. "Gross margins should be going up as the iPhone kicks in."
Low pricing was a key factor in the revival of Apple's sales of iPods, which have been sluggish recently. The company sold 11 million iPods in the most recent quarter, up 12 percent, more than analysts had expected. But iPod revenue only grew by 7 percent because most of the increase in sales came from the low-end Shuffle model. Apple cut the base price of the Shuffle in the United States to $49 early this year.
Cook also said the new $199 price was a key reason for vigorous sales of the new iPhone 3G. The company's surveys, he said, showed that many potential customers were put off by the $399 price of the initial iPhone.
But while lower pricing seems to have clicked with consumers, it has made some investors nervous. The company's shares fell 10 percent in after-hours trading on Monday. The shares closed down 2.6 percent Tuesday in New York.
Apple executives declined to give any specifics on iPhone 3G sales so far, other than to repeat that the company sold one million in the first three days. They did say that Apple expects to sell more iPhones than in any other quarter, meaning it should beat the 2.3 million phones sold in the last three months of 2007.
Cook said that the company was confident enough in its ability to increase production of the iPhone to increase distribution from 22 countries to more than 70 by the end of September.
This month, two market research firms, International Data Corp. and Gartner, projected that Apple sold more than 1.3 million Macintosh computers in the United States in the second quarter, permitting the company to climb into third place among PC makers, behind Hewlett-Packard and Dell.
Apple said it had sold 2.49 million Macintosh computers around the world during the quarter, a 41 percent increase in unit shipments compared with the same quarter a year ago.
Sales of Apple computers have grown stronger in part because of the disappointment surrounding Microsoft's Vista operating system and in part because of what is referred to as the halo effect created by the iPod and iPhone.
In response to a question about the health of Steve Jobs, the Apple chief executive, Oppenheimer told the analysts that it was a private matter. Jobs appeared gaunt this month at the company's World Wide Developers Conference, drawing expressions of concern. The company said at the time that he had an infection but that his health was good.
iht
The tease came Monday as Peter Oppenheimer, the Apple chief financial officer, explained why the company expected its gross profit margin to drop from 34.8 percent in the three months that ended in June to 30 percent in the current quarter. That caused a sharp drop in Apple's stock price in after-hours trading on Monday.
One reason for the narrower margins is a promotion that gives free iPods to students who buy new Macintosh computers. But another is what Oppenheimer called "a future product transition, which I can't discuss today."
Apple is widely expected to be getting ready to refresh its line of notebook computers, and there is some speculation that it may introduce a new kind of device that is smaller than a laptop but larger than an iPhone. In several ways, Apple executives hinted that this new product would compete aggressively on price with rival devices.
"We will deliver state-of-the-art new products that our competitors just aren't going to be able to match," Oppenheimer said during a conference call with analysts, responding to a question about the lower profit margin targets. And several times Tim Cook, the chief operating officer, outlined Apple's evolving pricing philosophy.
"One of the investments we make is to introduce new products that initially cost more because they deliver an entirely new level of value to the customer," Cook said. "Then we ride the cost curves down with value engineering and volume manufacturing, leaving us far ahead of our competitors. We have some of these types of investments in front of us that I can't discuss."
For years, Apple pursued a premium pricing strategy, reflecting its status as a niche vendor. The music player business, in which Apple has the dominant market share, moved the company toward a more mainstream pricing philosophy.
The warning Monday "has to mean significant price changes in one of their major products," said A.M. Sacconaghi Jr., a securities analyst with Sanford C. Bernstein. "Gross margins should be going up as the iPhone kicks in."
Low pricing was a key factor in the revival of Apple's sales of iPods, which have been sluggish recently. The company sold 11 million iPods in the most recent quarter, up 12 percent, more than analysts had expected. But iPod revenue only grew by 7 percent because most of the increase in sales came from the low-end Shuffle model. Apple cut the base price of the Shuffle in the United States to $49 early this year.
Cook also said the new $199 price was a key reason for vigorous sales of the new iPhone 3G. The company's surveys, he said, showed that many potential customers were put off by the $399 price of the initial iPhone.
But while lower pricing seems to have clicked with consumers, it has made some investors nervous. The company's shares fell 10 percent in after-hours trading on Monday. The shares closed down 2.6 percent Tuesday in New York.
Apple executives declined to give any specifics on iPhone 3G sales so far, other than to repeat that the company sold one million in the first three days. They did say that Apple expects to sell more iPhones than in any other quarter, meaning it should beat the 2.3 million phones sold in the last three months of 2007.
Cook said that the company was confident enough in its ability to increase production of the iPhone to increase distribution from 22 countries to more than 70 by the end of September.
This month, two market research firms, International Data Corp. and Gartner, projected that Apple sold more than 1.3 million Macintosh computers in the United States in the second quarter, permitting the company to climb into third place among PC makers, behind Hewlett-Packard and Dell.
Apple said it had sold 2.49 million Macintosh computers around the world during the quarter, a 41 percent increase in unit shipments compared with the same quarter a year ago.
Sales of Apple computers have grown stronger in part because of the disappointment surrounding Microsoft's Vista operating system and in part because of what is referred to as the halo effect created by the iPod and iPhone.
In response to a question about the health of Steve Jobs, the Apple chief executive, Oppenheimer told the analysts that it was a private matter. Jobs appeared gaunt this month at the company's World Wide Developers Conference, drawing expressions of concern. The company said at the time that he had an infection but that his health was good.
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