Apple Takes a Drubbing

Posted on January 23, 2008

Apple (AAPL) has been taking a beating on Wall Street today. The stock is down over 10%. The reason isn't the company's holiday performance but the possibility of a weaker future. Forbes is asking if one bad Apple could spoil the bunch - meaning could Apple weakness spill over into other tech stocks. It's hard to see gadgets having as good a year this year as they did last year if we are heading into a recession.
To some extent, it's a case of one bad Apple (AAPL) spoiling the bunch. Steve Jobs & Co. is seen as the most innovative, growth-producing group in tech. And if the U.S. consumer's economic troubles are starting to rattle mighty Apple, high fliers like Research In Motion (RIMM) and Google (GOOG) might not be immune, either.

Indeed, Apple's holiday performance showed signs that the company's not unstoppable in 2008. In particular, Apple's cautious outlook, weakness in U.S. iPod growth and the unpredictability of iPhone sales left Wall Street's pessimists plenty of reason to doubt. And in this jittery market, those pessimists have a lot of power.

First, a recap of Apple's good news - and there was plenty of it. Apple turned in revenue of $9.6 billion and profit of $1.6 billion for the holiday quarter, blowing past the average analyst estimate. The company shipped a record 2.3 million Intel (INTC)-based Macs during the period, and actually sold as many iPhones as computers. In the process Apple generated $2.7 billion in cash, bringing its war chest to $18.4 billion.

But there was troubling news, too. On the conference call with analysts, Chief Financial Officer Peter Oppenheimer admitted that iPod sales merely met the company's expectations, rather than exceeding them. Part of the reason, he said, was that U.S. iPod sales weakened in December - it took overseas sales to make up the difference. "In the U.S., in the gift-buying season, we saw a slightly different curve," he said. "That was made up for in our very, very good growth internationally."
Apple did have a great holiday quarter but what will happen to Apple in the first three quarters of this year with consumers fighting off a recession and rising prices? That's the question investors are asking about Apple and many other gadget manufacturers. There are also concerns that if people already have any iPod will they might not be as excited about owning the latest and greatest iPod - especially if things get tight.