iPhone 5 Could Boost Apple's Gross Margin

Apple is currently enjoying its best year so far, with the company's recent quarterly earnings going far beyond analysts' predictions. Apple managed to become the number one smartphone vendor in terms of both revenue and volume, and the successful iPad and Mac lines also made a significant contribution to boosting the company's profits.

However, whilst the growing market share and profit gains are reasons to be happy, Apple also has its reasons to worry.

The company's gross margins are going down, from 62% in 2007 to 51% in 2010, and experts expecting the gross margins to decrease even more in 2011. This has been caused by the fierce competition with Android-based smartphones from Samsung, Motorola and HTC, as well as RIM, Nokia, etc, which has led to a price drop for Apple's smartphones.

Some claim the gross margin could decrease to 37% by the end of the year, while others forecast a smaller fall, from 51% to 44%. Given the fact that Apple will presumably soon launch its iPhone 5 at a higher price whilst aiming at reducing manufacturing costs, the decline will probably be less dramatic, Forbes suggests.

On the other hand, rising competition from Android and other mobile makers will put the pricing pressure on Apple, and in order to remain competitive and keep attracting consumers, the smartphone's price will need to be accessible.

The iPhone 5 is vey likely launching this fall, when we shall see Apple's pricing strategy and whether the gross margins will continue to decline.