Analyst: Falling Margins Won’t Hurt Apple

While Apple’s (NASDAQ:AAPL) falling gross margins may become the norm for the company, Evercore Partners analyst Rob Cihra said growth was not a cause for worry just yet. In a note to clients on Friday, Cihra also predicted Apple was likely to announce a low-cost phone this fall, resulting in further lowered operating margins. However, such a development was unavoidable as the company needed to “evolve its cream-off-the-top business model,” he said.

The low-cost device would possibly come in September at an unsubsidized price of $390, the analyst said. The 40-percent discount in price from the flagship iPhone model would still represent a premium compared to the rest of the market. Initial target launches would come in emerging markets and may accompany a relationship with China Mobile (NYSE:CHL).

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Lowered margins were acceptable for the company, wrote Cihra, who rated Apple stock Overweight with a $675 price target.

“Apple’s economic modus operandi has never seemed about high-volume mainstream but rather skimming off the premium price/margin of each market,” Cihra wrote. “But as large numbers become a governor, we see Apple forced to gradually scale down into more of the mainstream (e.g., iPad mini, low-cost iPhone).”

Yet, while such a transition would diverge from Apple’s traditional business philosophy, Cihra said he had no doubt about the company managing to sustain double-digit growth rates…

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