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Margin Notes: On Apple's Q4 Guidance Revision

I have alluded to my expections for Apple's margins to improve in the coming quarters as we enter the most profitable phase of their product cycle, especially with the cost savings they will realize with the iPhone 5c.

Apple surprised us today by discussing revenue and margin guidance along side the iPhone sales numbers. The likely implication of this is that there have been material changes to management expectations since the original guidance was offered. There are two potential causes for this. One would be that component costs for iPhone and iPad have already come down more than expected. The would be that the new products have margins high enough to impact the current quarter materially even though they will only account for a minority of current quarter sales.

Either way, it is great news for Apple. This likely means that margins in the holiday quarter and through the first half of 2014 will be even better than I was already expecting. This is perhaps the most significant and positive surprise for me in today's numbers (all of which should seriously call the bear case into question).