Analyst: New products help Apple dodge effect of price hikes

Researcher Andy Hargreaves warned investors that struggles to match demand with supply in the LCD panel and NAND flash memory display markets was liable to hurt Apple as part manufacturers raised prices to help cool off the quantity and sizes of orders.

Flash in particular was suffering the most from the spike, with the prices for 2GB, 4GB, and 8GB on-the-spot orders jumping by $2.92, $3.29, and $1.71 respectively in July alone. Though they initially appear small, the climbs will have been significant enough to cut Apple's margins on iPods by about 3 percent by the end of the quarter, according to the estimates. Prices are only likely to climb further through at least the current quarter, Hargreaves said, potentially compounding the situation for the Cupertino, Calif.-based electronics giant.

Computer display prices have also seen a hit of between $5 and $11 for every LCD due to a similar shortage, he added. The climb upwards was predicted to reduce the margins on iMacs and MacBooks by as much as 5 percent if display prices continued to rise at their existing rate, especially for the premium screens found in notebooks.

But Apple has likely taken much of this into account, the analyst noted in his report. The company had already factored higher prices for components into its guidance for the summer quarter, suggesting that it had already prepared for the added expense. Apple's 2006 deals with multiple suppliers such as Samsung and Toshiba may have given it a competitive advantage by allowing it to buy in advance or to secure discounts through the sheer volume of orders.

"Given the company's expectations, it is possible that Apple purchased components in bulk ahead of, or in the early stages of, the current price increases," Hargreaves said, "which would minimize the negative gross-margin impact."

The firm may also have hedged its bets with a string of new products that have shipped or will ship in the near future, including the iPhone and new iMacs, a possible new video iPod, and the already scheduled October launch of Mac OS X Leopard. The long-term success of possible subscription-based services and an increase in corporate Mac sales could also lessen short-term concerns, according to the report.

And despite the threat of reduced profits, Apple was described as having a unique amount of resistance to fluctuations in component costs that lets it set prices on its own terms.

"Apple is one of the premier brands in consumer electronics, which, along with its unified user experience, gives the company very strong retail pricing power," Hargreaves noted. "We believe that iPod's ability to maintain unit share of the MP3 [player] market despite premium pricing is evidence of this."