Apple price pressure as profit margin declines to levels after iPhone launch

Apple's profit margins are falling back to levels not seen since sales took off after the 2007 debut of the firm's iPhone, as competition and a lack of breakthrough products pressure the company to lower its prices.

Concern over falling margins helped prompt a 33 per cent decline in Apple's shares from a record high of US$705.07 on September 21, making it the worst-performing stock in the Standard & Poor's 500 Index over the same period.

Last week, Apple said the board and management were discussing the return of more money to shareholders, after a proposal by Greenlight Capital's David Einhorn to pay out more of its US$137.1 billion in cash and securities, possibly with higher-yielding preferred stock.

The latest quarter's drop in gross margin to 39 per cent from 45 per cent a year earlier was caused by the introduction of the iPad mini, as well as other products with higher costs and price reductions for existing products, the company said.

Unless chief executive Tim Cook unveils a revolutionary new gadget with premium pricing, Apple shares will remain under pressure, analysts said.

"It will be almost impossible for Apple to maintain the margins it's had in the last few years," said David Yoffie, a professor at Harvard Business School. "They've been able to charge pretty much whatever they wanted for their products, but competition is increasing."