If estimated warranty expense had remained constant in absolute dollar terms ($150M), GM would have been 38.4% vs 36.9%. If If estimated warranty expense had remained constant in as a percentage of revenue (1%), GM would have been 130bps higher at 38.2%.
Muller spots the culprit in the margin drop. He notes that this is money set aside and may have been in anticipation of returns of the iPhone 4 due to antennagate. Note how in 3Q cost of claims was 155 and accruals were 157, about a 1:1 ratio whereas in 4Q costs were 286 and accruals were 457 about 1:1.6.
It’s possible that if the costs this quarter do not materialize then we could see a margin upside surprise.
(Contrast this insight with today’s large scale sell-off in shares due to mass media repetition of earnings guidance from the conference call as shocking “news.” See also evidence of unlawful trading behavior here.)