San Jose, - With a broader economic slowdown looming over technology stocks, investors flocked to Apple Incorporated in recent months hoping the stock would be a sure-fire holiday-season winner and safe-haven from the market's overall turmoil.
However, when Apple's outlook for its second quarter showed even it might not be impervious, many shareholders retreated from their bets on the firm, pushing its stock down 1 706c, or nearly 11%, to 13 858c in after-hours trading.
Apple forecast profit of 94c per share in the second fiscal quarter, far short of the 109c per share that analysts were expecting. Revenue is also expected to be lower, coming in around $6.8bn, compared with the $6.99bn forecast by analysts.
The report of a robust holiday quarter - when profits jumped 57% during the three months ended December 29 - was not enough to overcome worries that Apple will struggle in 2008.
Shareholders out of money
More than $40bn in shareholder wealth has vanished since the end of December, when Apple's stock hit its 52-week high of 20 296c.
Apple became emblematic of the broader market tumble on Tuesday, in which the tech-laden Nasdaq composite index fell 47.75 points to 2 292.27. Apple shares ended regular trading on the day down 572c at 15 564c, before the earnings report and second-quarter guidance were released.
Some analysts said the fears about slowing consumer spending were overblown and the company may have been a victim of its own past successes.
"I think it's more of the whisper numbers on Apple just got incredibly high," said Jane Snorek, senior analyst of technology stocks for First American Funds. "(There were rumours) of $10bn in sales and 200c per share in earnings and that they might raise their guidance. And when they kind of report in line and guide down like they're supposed to, like they should be doing, it's a big let-down."
Skittish
Apple's guidance has historically been conservative, but such a divergence from Wall Street's estimate rattled investors already skittish about the economy.
The stock plunge was likely worsened, Snorek said, by the exodus of a large number of investors who had hoped Apple's stock would be a refuge from the economic pressures hurting the overall stock market.
"There was a lot of money hiding in this stock," she said.
Still, Apple managed to blow past Wall Street's bullish expectations in the first fiscal quarter, aided by soaring sales of Macintosh computers and continued rising sales of iPod digital music players.
CEO Steve Jobs said the company notched the highest sales and earnings figures in the company's history.
Gaining from PC market
Apple's net profit was $1.58bn, or 176c per share, for the three months ended December 29. That was 14c higher than the average estimate of analysts polled by Thomson Financial.
Net income during the same period a year earlier was $1bn, or 114c per share.
Sales during the first quarter came in at $9.61bn, also higher than the $9.47bn Wall Street was expecting and 35% more than the $7.1bn of the same period a year ago.
Apple is profiting from sharply accelerating gains in the personal computer market in the United States, where the company has hovered in the 2% to 3% market share range for years. By the end of 2007, however, Apple had scooped out a share of more than 6%, according to market researcher Gartner Incorporated.
Those gains were reflected in the latest quarter with a 59% jump in sales of desktop Macintosh computers to $1.51bn, and a 40% jump in laptop sales to $2.04bn.
iPod steals show
Still, iPod sales eclipsed both of those categories, underscoring Apple's transition from purely a personal computer manufacturer into a delivery vehicle for all forms of digital entertainment, from music and television shows to movies.
Earlier this month, the company took the plunge into online movie rentals through its iTunes service and upgraded its Apple TV device to allow consumers to download and play movies directly through the box itself, obviating the need for a personal computer for those transactions.
In the first quarter, iPod sales jumped 17% over last year to $3.99bn. Total personal computer sales settled at $3.55bn.
Apple executives declined to comment on economic factors such as sluggish consumer spending that may have weighed on second-quarter guidance.
Instead, the company pointed to bustling Apple retail stores, which saw more than 10 million more people come through their doors in the first quarter than during the same period last year.
Growing faster
Apple executives also noted that second-quarter guidance, while lower than what Wall Street was expecting, still predicts a revenue jump of 29% over last year, which is a faster rate of growth than in previous years.
"Our business performed very well in the December quarter, and we remain very confident in our products and our strategy," said Apple chief financial officer Peter Oppenheimer.
The iPhone, Apple's combination iPod-cell phone-wireless internet browser, also remains a closely watched indicator of Apple's success. More than 2.3 million of the devices and accessories were sold during the latest quarter.
Jobs said, during the Macworld Conference & Expo earlier this month, that Apple has sold 4 million iPhones since they went on sale June 29, 2007, in the United States. Subsequent launches in Britain, Germany and France have boosted sales while sparking legal fights over Apple's strategy of striking exclusive deals with mobile operators in each region. Apple is also in talks to bring the device to China and Japan.
Company executives said on Tuesday that Apple remains on track to sell 10 million iPhones by the end of 2008, which would give the device roughly 1% of the global cellular phone market.
- AP