Apple's Event: Product Mix and Pricing Under the Microscope

Apple Inc.'s (NASDAQ:AAPL) upcoming special event on September 9 will focus more on product mix and pricing than on new device announcements. The market has already priced in a richer hardware mix, valuing Apple at 36.7 times its trailing earnings of $8.72 per share.

The company's fiscal third-quarter revenue was up 16% from the previous year, with diluted earnings rising 29%. iPhone sales accounted for nearly half of quarterly revenue, driving the acceleration. However, the quality of gross margin deserves attention, as total gross margin reached 50.1%, but product margin was only 40.1%, due to mix and refunds.

Analysts are divided on Apple's prospects, with KeyBanc maintaining an Underweight rating and a $250 target, citing weaker demand, while Rothschild Redburn upgraded the stock to Buy with a $400 target, based on assumptions that a foldable device can boost iPhone sales compound at 12% over five years.

The key test for Apple's valuation will come in its next earnings report, where management has guided fourth-quarter revenue growth of 9-11%, with gross margin of 47-48%. A launch that raises mix without damaging units would strengthen the case for the current valuation multiple, while broad price resistance or another margin step-down would do the opposite.