“There’s growing concern that the U.S. computer industry is in for a bigger slump than previously thought,” Catherine Holahan reports for BusinessWeek.
“The second quarter is rarely a good time for computer makers. Back-to-school buying won’t get started in earnest for months, the holidays are half a year away—in both directions—and corporate IT budgets are still far from spent. But there’s growing concern that this year’s lull is hitting especially hard,” Holahan reports.
“Concerns over the U.S. computer industry surfaced on July 12, as some prominent Wall Street analysts made bearish remarks about Dell (DELL), the world’s largest PC maker, and Apple (AAPL), which makes computers and the popular iPod digital music player,” Holahan reports. “By the end of the trading day, tech stocks had taken a beating, with computer makers some of the biggest losers. Dell shares fell more than 4%, while Apple slumped almost 5%. Hewlett Packard (HPQ) dipped 2.7%.”
“Credit Suisse issued a report [recently] that did a number on Apple’s stock. The computer maker, which reports fiscal third-quarter results July 19, will probably issue sales and earnings forecasts for the current period that falls short of analysts’ expectations, Credit Suisse analyst Robert Semple wrote,” Holahan reports.
“Apple is likely to tell analysts that fourth-quarter sales will be $4.6 billion to $4.8 billion, compared with analysts’ estimates for sales of $5 billion, the report says. ‘We expect Apple will once again use the September quarter to reduce iPod inventories as the company prepares for a refresh of its product lineup,'” Holahan reports. “Apple has [also] been dogged by reports from analysts at other firms that the next version of the popular iPod music player will be delayed.”
Full article here.
Related articles:
Reuters: Apple’s ‘beleaguered’ stock sheds 4.8 percent to hit lowest mark in nine months – July 12, 2006
Mad Money’s Cramer: hammering Apple stock is much like ‘shooting Apples in a barrel’ – July 12, 2006
Tech stocks retreat as European Commission fines Microsoft – July 12, 2006
CSFB Analyst: Apple could warn on 4th quarter profit and revenue – July 12, 2006
JMP Securities: Apple Computer initiated at ‘Strong Buy’ – July 11, 2006
Analyst Wu: New iPods may face delays of as much as six months – June 28, 2006
Quote “Whack a Mole……….your rediculous postulations about “The Cell” powering Macs demonstrate your entire lack of understanding about anything.”
Couldn’t have put it better myself
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Ok, I guess we will see in a few months right?
I mean after all, if Apple just puts out some Intel Mac Pro’s then one can just sell their stock and break even.
But if it isn’t…
Hell, why not… I’m going to throw out a prediction Jean Dixon style:
All Tech stocks will slump (not necessarily tank) until after Labor Day.
^^^ Clarification – ALL: as in most of the sector, not every single one.
“What kind of logic is this? Wall Street logic, apparently. They’re making plenty of money, just not as much as Wall Street would like them to. It makes no sense to me.”
This may help you make sense of it:
If the company doesn’t make as much money as forecast, it’s worth less money to buy a share of that company.
If the growth isn’t what’s expected, the value will be radically less.
Example, say Apple sales decrease by 10% every year for the next 10 years, and all other things stay equal, the stock could be worth say $18.
If sales stay flat, it might be worth $29.
If they increase by 10% every year for 10 years it might be worth $50.
If they increase by 20% every year for 10 years, it might be worth $106.
So what’s going on is people are adjusting their perceptions of Apple’s future growth potential based on lower numbers, and that rightly results in big swings in the stock price.
To show you what this means, at the end of 10 years with 20% growth per year would be a discounted free cash flow of 54 billion.
Discounted free cash flow is in simple terms the amount of money the company has over after paying all it’s costs of doing business, making the investments it needs to keep the business going and so on.
With 10% growth, that becomes 22 billion.
With no growth, about 9 billion
and with -10% growth about 3 billion.
Clearly you pay a lot less for an investment with the potential to return 3 billion cash in today’s dollars than one which would return 54 billion.
And that’s why future growth is so critical. And that’s why stock prices change so much when revenue and growth expectations don’t match what the institutional investors thought it would be.
So far from being illogical, when these investors get nervous about future growth the desire to sell and the drop in the stock price is to be expected.
Now that doesn’t mean they’re right, after all future growth, especially for a company like Apple where that growth is quite uncertain, is difficult to preduct. But their change in the percieved value based on their assumption that Apple’s growth has slowed even slightly is quite rational.
After all a drop in expected year on year growth of only 3% over those 10 years would be enough to justify a drop from $60 to $50 a share.
And as you can see quarterly numbers are expected to be 4% to 8% (so lets say 6%)lower.
If people thought that would happen every quarter for the next 10 years, the stock would be at 20 bucks now.
Correction to last line, it’d be around 10 bucks.
“The market never was fair or rational.”
Actually most research shows that over the long term the market is both fair and rational.