Why Apple Is Willing To Accept Lower Margins

Apple products
Via Flickr by Yutaka Tsutano

On October 25, Apple CEO Tim Cook announced that the company would absorb lower earnings per share in the holiday quarter. This comes as a result of a new lineup that features the iPad Mini, iPhone 5, and upcoming new iMacs, according to CNET’s Casey Newton.

From $13.87 per share last year to $11.75 per share this year, Apple cites the high costs found in its new line of products. Cook noted that “this is the most prolific period in our history in product introduction and innovation,” saying that he couldn’t see the production prices increasing through the first quarter.

With the iPad Mini, Apple is hoping to play catch-up with manufacturing costs. Once it becomes more efficient in this area, Apple will be able to make up for the unit’s standing as “significantly below the corporate average,” which Apple’s chief financial officer Peter Oppenheimer notes.

This appears to be the common theme for Apple with many of its devices. New versions of Apple devices are found throughout the lineup – including the iPad, iPhone, and a number of iPod devices. Of course, the iPad Mini is a new addition that adds to Apple’s increasing roster.

Just last November, according to the Associated Press, Apple was noted for its “premium pricing as the market leader.” The report notes that the third-generation Wi-Fi-only iPad (32GB and 9.7-inch screen) costs around $333 and retailed for $599 – a 44 percent profit margin. The 16GB version had a 37 percent profit margin.

This current move by Apple may be quite bold. However, the company seems to be eyeing more impressive profit margins once “the dust settles.” This potentially risky move could pay big dividends for Apple, as well as higher profit margins across its ever-expanding lineup. At any rate, this seems to be a gamble that Apple can afford to make.