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What Cool New Stuff Is Apple Cooking Up?
Apple’s second quarter 2008 earnings proved to be a huge blowout, though Wall Street reacted negatively to company’s conservative outlook. Well, they are almost always wrong on Apple - which is clearly a sentiment driven company.
Nevertheless, the highlight of the quarterly earnings was the supercharged Mac sales. The numbers match-up with recent reports that Apple was leaping up the US PC-sales charts. Revenues for the quarter were up 38%, highest since 2005 despite slowing iPod sales and scant iPhone sales.
Peter Oppenheimer, Apple CFO was conservative in his outlook for the September 2008 quarter giving many reasons, including “a future product transition.” Analysts from Technology Business Research think that “Product transition” is Apple-speak for cool new stuff. I concur. So what could be on menu?
TBR believes Apple will refresh its notebooks with the latest Intel Centrino 2 processors, which will improve performance and increase battery life. We think the company will do more than update internals, however. In addition to a redesign, TBR believes Apple will add TV tuners and may introduce a larger screen MacBook. To maintain the necessary product differentiation, Apple will probably use quad-core processors for the new MacBook Pros. iMac desktop PCs are not likely to get a dramatic overhaul, but Apple will probably beef them up.
What that means: Apple is going to do more than fine this coming quarter. Not only iPhone sales will goose up their revenues, the new products could add ore oomph to the company bottom line. The big cloud on Apple: Steve Jobs health.
Hurry Up and Bounce
A bounce in technology stocks, at this point, is inevitable. With the S&P’s tech sector down 10 percent so far this year — and a bearish-looking 20 percent since last summer — it’s just a matter of time before the sellers get tired and others step in to buy, if only for short-term gains.
That leaves two questions: The first is when will the bounce come? And more importantly, what happens then? Is it the proverbial dead cat? Or is it a chance to get in on a sure-fire recovery now that the worst is past? Without a doubt, there’s as much uncertainty now as there has been in a while, and an absence of indicators tends to make us read the worst into the vague gloom. Further, there’s plenty of gloom to read into.
After a slight initial pop, the Nasdaq has edged back down into negative ground as I write this Wednesday. Even a small decline today would be significant. According to Paul Kedrosky, that would be the longest losing streak for the Nasdaq since May of 1984.
After less than six trading sessions, a lot of big names are bruised. Shares of Amazon.com (AMZN) are down 11 percent, Apple (AAPL) is down 13 percent, Intel (INTC) has lost 16 percent and Research In Motion (RIMM) is off a whopping 17 percent.
Since I looked at the tech sector through the lens of bellwether Apple, lots of news has come and gone. Very little of it was good, and there were inside that stream some particularly unsavory morsels. AT&T (T) stunned analysts when an exec said people aren’t paying their phone bills. Their phone bills — one of the last items normally trimmed from pinched household budgets. Now it could be that, rather than having the luxury of both a wireless account and a land line, people are simply foregoing one in favor of the other, but news like that doesn’t inspire confidence.
Then it was revealed that a director who has sat on Dell’s (DELL) board for 13 years sold half his holdings in the PC maker. The director, Michael Miles, is also on the boards of both Time Warner and the airline AMR, neither of which are exactly the kinds of stocks that people are stuffing their portfolios with this month. But he didn’t touch any of those shares (assuming he is a major holder).
Meanwhile, tech retail, a mixed bag in 2007, is so far notably less mixed in 2008. Even some of last year’s better performers are having a rough time. Bear Stearns downgraded Best Buy (BBY) Tuesday, and when GameStop (GME) reports that it’s raising guidance on fourth-quarter sales, it’s stock gets beaten down.
Developments like that make you wonder about the upcoming earnings season. As tempting as it is to think that the worst selling is behind us — that there could even be a bounce when numbers are reported — it doesn’t look like that’s going to happen. Broadband provider Centennial Communications (CYCL) said Tuesday it swung to a profit and matched the penny-a-share earnings of a year ago. But it fell short of the Street’s expectations and was slammed 17 percent in one day.
If this is a taste of what’s coming, we’re in for a rocky ride. A lot of stocks rallied last year when analysts were underestimating profit growth. If tech earnings prove to be worse than analysts have been forecasting, the stock losses seen so far could get worse.
Many tech giants have been benefiting from strong consumer sales, but if this year’s CES is any indication, there aren’t a lot of innovative new ideas out there right now. Who’s going to line up to buy a 150-inch plasma TV in a recession?
There is still Macworld. The buzz is that Apple has some interesting announcements planned, but it’s hard to imagine anyone that could match the frenzy sparked by the iPhone last year. The market needs some genuinely good news to get us through this long winter.
Apple’s Worst Day in 32 Months
Apple shares slid 7.6 percent Friday, closing at $180 and capping an 11-percent loss in just one (shortened) week. Should investors be worried?
If you figure that the setback left Apple’s (AAPL) stock at its lowest close in only one month, probably not. And considering the 135 percent surge it saw throughout 2007, it was at least a little bit overdue for a pullback.
On the other hand, this is the worst one-day percentage drop that Apple’s stock has suffered since April 2005. On the 14th of that month, Apple shares fell 9.2 percent.
Back then, Apple was riding a surprisingly strong quarter on growing iPod demand, but investors didn’t like the conservative guidance the company was giving, so they sold off. It took three months for Apple’s shares to recover that 9.2 percent loss, but once they did, they caught fire. Apple closed at $37 on April 14, 2005. By the time 2007 drew to a close, the shares had risen to more than five times that price.
In hindsight, selling Apple then wasn’t such a hot idea. And this time around, the slump in Apple’s shares has little if anything to do with what the company has done. But investors are again concerned about its future — or rather, the future of the U.S. economy, which many believe will stifle Apple’s ability to keep growing.
On that front, things look very grim indeed. 2008 is off to a hard start for stocks in general, and tech stocks in particular. As Eric Savitz over at Barron’s noted, the Nasdaq had its worst day in nearly five years.
“The bottom line is that the odds of a recession appear to be rising. As I noted earlier, the biggest catalyst for today’s sell-off seems to be the latest jobs data: Nonfarm payrolls rose 18,000 in December, the worse month for job creation since August 2003. The unemployment rate rose to 5.0%, the highest level since November 2005. As I noted yesterday, Monster.com reported the biggest-ever one-month drop in its online recruitment index in December.”
That recession fears are sparking a tech selloff isn’t at all unexpected. The timing may have less to do with start-of-year portfolio allocations than growing concerns that tech stocks, some of which have risen to unrealistically high valuations, may have disappointing earnings later this month.
More surprising is that Apple shares were among the hardest hit. Shares of Research In Motion fared a little worse, falling 8.4 percent, as did Intel’s stock, which slid 8.1 percent after JPMorgan downgraded it, citing signs of sluggish orders from PC makers. But shares of other tech bellwethers didn’t do so badly: Amazon lost 6.7 percent, while Google, Microsoft, IBM and VMWare all gave back less than 5 percent.
On Friday, Apple received one fan note, from an analyst: Goldman Sachs raised its price target on Apple to $220 from $205, implying a 22 percent gain from the stock’s current level. Goldman’s reasoning was sound enough: Macworld is coming, as is what should be a solid earnings report for the December quarter. And later in the year could bring news on a next-generation iPhone and a new sub-notebook.
Some might say Apple’s shares had gotten too pricey, but its price-earnings ratio for its upcoming fiscal year is 28, lower than Google’s and half those of Amazon and VMWare.
I suppose Apple’s Achilles’ heel in a weak economy is its dependence on product upgrades — its reliance on customers buying a new iPod even though their two-year-old iPod works perfectly fine. If they hold off on buying a new model iPhone, it could hurt growth.
There is one sign that Apple is bracing for slower sales, but it’s a vague one. Catcher Technologies, which supplies metal cases for iPods, reportedly said that Apple was cutting back on orders even more than it normally does in December. Such a move could reflect a new supplier or a new iPod design, but in this climate the news has a spooky feel.
But today’s selloff seems a bit rash and could be a chance for Apple bulls to stock up. Its shares are highly unlikely to rise another five times over anytime soon. But we may be seeing a battle emerging between Apple’s innovation and an economic recession. It will be interesting to see who wins that one.
How High Can Apple Go? $600 a Share?
Bolstered by the news of upcoming movie rentals via iTunes, hot selling Macbooks and iPod Touches, Apple just blasted past the $200 a share. So where does it go next?
“There’s so much growth to look forward to for the iPhone,” said Stephen Coleman, chief investment officer at St. Louis-based Daedalus Capital LLC, which owns about $7 million of Apple shares. He projects the stock will hit $600 in 18 months. (via Bloomberg)
Seems like a case of too much egg nog! Or Not! This has been a good year for Apple believers - the stock is up a whopping 138%. In comparison, Google, the other stock market darling is up a mere 54%. But you already knew that!
Mac OS X Leopard: Your Favorite Feature Poll
Apple (AAPL) will release its new operating system upgrade, code named Leopard on October 26. The $129 upgrade is packed with 300 features, including some new ones. My personal favorite, and the only real reason to upgrade is the new Apple Mail client. What is that one good reason to upgrade (if you upgrade) to Leopard? Take our poll below the fold.