Apple’s weak margin outlook surprises analysts

(Reuters) – At least three brokerages cut their price targets on Apple Inc by up to $ 50 a share after the iPhone maker surprised analysts by forecasting lower gross margins for the current quarter.

Apple shares edged lower 0.1 percent to $ 608.85 in premarket trading.

For the December quarter, Apple forecast revenue of $ 52 billion, below estimates of $ 55 billion, according to Thomson Reuters I/B/E/S. It expects margins of 36 percent, far lower than analysts’ expectations of 43 percent.

Analysts focused on the decline in margins and played down the significance of a fall in iPad sales in the last quarter, as users waited for the iPad mini, and they did not expect this to continue.

Apple’s forecast decline in gross margin, even assuming it was deliberately aiming low, still pointed to an unusual decline, Evercore Partners analysts Rob Cihra and Edison Yu said in a research note. Evercore cut its price target on the stock to $ 775 from $ 800.

Nomura Equity Research said it expected production costs to rise in the current quarter, after Apple redesigned so many of its products at once.

“The iPhone 5, iPod Touch, iPod nano, iPad mini and iMac all feature new form factors and our checks with the supply chain indicate that many of these are very complex to manufacture and are likely resulting in reduced production efficiencies,” Nomura analysts said in a note as they lowered their price target to $ 660 from $ 710.

Apple heads into the current quarter after refreshing almost all of its product lines, including introducing a lower-priced 7.9-inch “iPad mini” and an upgraded fourth-generation full-sized iPad.

Apple said it expects 80 percent of revenue in the current quarter to come from new products but did not increase the product prices to offset higher costs and maintain its margins.

Analysts, however, expect gross margins to recover by June next year as rising volumes trim manufacturing and component costs.

When the iPhone 4 was launched, Apple suffered a 480 basis point decline in corporate gross margins but it recovered entirely within two quarters, Raymond James analyst Tavis McCourt said.

He cut his price target on the stock by $ 30 to $ 700.

ORDERS OUTSTRIP SUPPLY

Apple had struggled to deliver large quantities of the iPhone 5 since its launch in late September, with waiting times stretching at times to three weeks in some regions.

This week, AT&T Inc blamed its disappointing subscriber growth in the third quarter on a shortage of iPhone 5, highlighting its dependence on Apple.

Apple CEO Tim Cook told analysts on a conference call that there was a heavy backlog for the latest iPhone but the company had mostly worked out kinks in its supply chain.

“We believe initial demand continues to look huge for Apple’s new 6th-gen iPhone 5, seeing a big jump coming in this Dec-qtr where our estimate remains unchanged at 49 million iPhones,” Evercore said.

South Korean rival Samsung Electronics Co posted a fourth straight record quarterly profit, $ 7.4 billion, with strong sales of its Galaxy range of phones.

Samsung sold 56.3 million smartphones in the third quarter, according to research firm IDC, giving it a global market share of 31.3 percent — more than double that of Apple, which said it sold 26.9 million iPhones.

Although fourth-quarter iPad sales of 14 million missed estimates, analysts said they expected sales growth in the December quarter and 2013.

Evercore forecast Apple to ship 67 million for 2012 and 97 million next year, and said this would said this would take sales of the tablet to around 27 percent of the size of the traditional PC market in 2013.

(Reporting by Supantha Mukherjee in Bangalore)

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Medtronic edited doctor reviews for bone-graft product: U.S. report

(Reuters) – Medical device maker Medtronic Inc edited health journal articles and paid doctors millions of dollars for company-sponsored studies of its Infuse bone-grafting product used in spinal surgery, according to a U.S. Senate report published on Thursday.

There were questionable ties between Medtronic and physician consultants who tested and reviewed the company’s product, the U.S. Senate Finance Committee said in the report, which concludes a 16-month investigation covering 5,000 documents relating to 13 studies of Infuse.

Medtronic paid about $ 210 million in royalties and consulting fees to the authors of company-sponsored studies between November 1996 and December 2010, the report said.

Those sponsored studies failed to mention complications from the product, including male sterility, an increased risk of cancer, infections, bone dissolution and worsened back and leg pain.

“The company’s significant role in authoring or substantively editing these articles was not disclosed in the published articles. Medical journals should ensure industry role contributions be fully disclosed,” the committee’s report said.

Chuck Grassley, an Iowa Republican and senior member of the committee, said in a statement: “The findings also should prompt medical journals to take a very proactive approach to accounting for the content of the articles, along with the authorship of the articles and studies they feature.”

The Senate committee, which has sole jurisdiction over U.S. government health programs Medicare and Medicaid, accused the company of wrongly promoting Infuse, a genetically engineered protein used in spinal surgery, as a better technique than bone grafts from the pelvis.

In response, Medtronic said in a statement on its website it “vigorously disagreed” with the allegations of influencing or authoring the publications or under-reporting adverse events.

“In addition, the report’s characterization of payments received by physicians is also misleading and unfair,” Medtronic said.

The inquiry by the Senate Committee began in June last year, investigating whether surgeons paid by Medtronic did not report complications associated with Infuse.

The Spine Journal reported at that time that 13 Medtronic-sponsored studies related to Infuse had reported no adverse events.

“While the report confirms what was reported in the June 2011 issue of The Spine Journal, the committee’s access to Medtronic’s internal documents presents a more detailed and disturbing picture of what can go wrong when ethics and patient safety are compromised for profit,” the North American Spine Society said in a statement.

The U.S. Food and Drug Administration approved Infuse in 2002 to stimulate spinal bone growth in patients with a degenerative disease affecting the lower spine.

However, the product is used mostly off-label, often for repairs to the cervical, or neck, spinal area.

According to Medtronic, Infuse has been used to treat more than 500,000 patients and generated sales of about $ 800 million in fiscal 2011.

(Reporting by Vrinda Manocha in Bangalore and Debra Sherman in Chicago; Editing by Greg Mahlich, Bernadette Baum and Dale Hudson)

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Navigating Apple’s New Productscape

Apple’s (AAPL) product announcements on Tuesday were fast and furious: a new iPad Mini, a new MacBook Pro, a new iMac, a refreshed iPad.

If you’re in the market for some new tech from Apple, it can be a little bewildering. Fortunately, I get paid to think about this kind of stuff and I can be very opinionated. Here’s my take on the best products coming straight out of Cupertino right now:

I Don’t Buy Convergence. I think a tablet can be a great tablet, and a laptop can be a great laptop. I don’t want one device to do both, because I don’t think one device can (see the middling reviews of Microsoft’s (MSFT) Surface for more on this, particularly Josh Topolsky’s video review at The Verge). I want a great slab of glass I can hold in my hand for tablet-like activities, and I want an actual computer when I need to do work. Which is why …

The iPad Mini Is the iPad I Want. Notice that I said “hold in my hand,” not “hands.” This has long been my issue with the standard iPad—it’s just a skosh too big and heavy to truly be comfortable (or maybe I just have Avian Bone Syndrome). The Mini, on the other hand? I think that might have legs. It’s not like people haven’t gotten comfortable with a small display they can hold in one hand (… cough … Kindle … cough …), and the Mini will be that much easier to throw in a bag than its larger sibling. I currently have a standard iPad, but were I starting over and could choose between the two, I’d get the $ 429 iPad Mini with 32GB of storage and Wi-Fi only (if I need an Internet connection, I’ll use my iPhone’s Personal Hotspot feature).

So (Too?) Many Laptops to Choose From. An iPad is nice, but again, it can’t (and shouldn’t) do everything. When it’s time to, as Big Daddy Kane so aptly put it, get the job done, I’m reaching for my laptop.

But which one? Apple’s laptop lineup is either robust or confusing, depending on your point of view. I tend toward the latter, but suspect all this will be rectified when the non-Retina MacBook Pros are quietly removed from the lineup once the newer Retinized MacBooks come down in price.

Apple makes a 15-inch laptop, but I actually like to move my computer around a bit, and the 15-incher is too bulky. For everyday computing, a 13-inch laptop is just right. Thing is, there are now three 13-inch MacBooks, so which one should you get?

I haven’t used an optical drive in years, so I have no problem losing one if it means I can have a thinner, lighter machine. That’s a vote against the older MacBook Pro, but that still leaves me with the MacBook Air and the MacBook Pro Retina. The Retina model looks like one hell of a machine, but it’s also pricey: $ 1,999 for the model with 256GB of storage. There’s a cheaper model with 128GB, but I think more storage is important: I’m no data hoarder, but 128GB can fill up quickly.

The Air can be had with 256GB (and 8GB of RAM) for $ 1,599. As much as I’d like to spring for the extra $ 400 to get the MacBook Pro Retina, I just can’t see myself doing it. For everyday computing, that Air will do the job just fine.

A Special Note for Travelers. If you’re often on the road, think about also getting that 11-inch MacBook Air for $ 999 (I wouldn’t suggest it as your only computer, but it’s a great second machine). It’s a little small for everyday use, but on a plane it’s a dream (particularly if you’re in coach and have Charlie Recline in the row ahead of you). I have one and, when I’m at home, I treat it like an iPad. On the road, it’s the best computer you can have in your carry-on.

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