Apple Computer posted better than expected profits yesterday,
but investors concerned about the upcoming quarter, as well as overall
market trends, caused the stock to slide back eleven percent today.
Apple's shares fell from a 52-week high
of 47.3123 to 41.375 by the close of trading due in part to concerns the
company will have a hard time managing inventory of its popular iMac
computer. Some 15.4 million shares traded hands today, making Apple's
stock one of the 10 most actively traded stocks in the U.S. market.
New iMacs come in five colors. |
More than 100,000 of the original iMacs may be still out there, which may
require further price cuts than Apple has already made. Apple has to make
way for new models of the iMac coming out now. The current quarter is also
historically a slow one for PC manufacturers.
Excluding a one-time gain, the
company earned 78 cents per share in its first fiscal quarter, still easily topping Wall Street expectations of 70 cents per share. (See related story).
At least five Wall Street analysts remained upbeat enough about the company
to reiterate "buy" ratings on Apple, and one influential bank, Donaldson,
Lufkin & Jenrette, upgraded Apple to a "buy" from a "market perform."
In spite of the strong earnings, though, Rich Gardner, an analyst at
Salomon Smith Barney in New York, today cut his rating on Apple shares to
"neutral" from "buy." Broader market concerns contributed to the downward
slide, analysts said, as well as profit taking after the stock's long
upward run prior to the earnings announcement, but Gardner's downgrade also
had a significant impact on the stock today.
In a research report issued today, Gardner estimated retailers may still
have between
100,000 to 200,000 of the 519,000 iMac computers shipped during the quarter
left to sell. Without more significant price cuts, the systems may not sell
well enough for the company to reach more optimistic earnings estimates in
the high end of 55 cents per share and up.
Gardner said retailers are averaging five weeks of iMac inventory, and that
number would have been higher had CompUSA and BestBuy not engaged in a quasi-price war. There
wasn't a significant boost in demand until the iMac was dropped to $1,099,
and the new models may experience a slackening of demand until priced at or
below that point, he hypothesized.
"We were disappointed in Apple's unwillingness to reduce iMac prices during
the December quarter," Gardner said in the report. "During the seasonally
weaker March quarter, the iMac will have even more intense competition from
Intel-based PCs since Intel appears to have over-produced Celerons which
must now be sold at reduced
prices during the March quarter."
"It's going to get more challenging in 1999," said Kimberly Alexy, an
analyst at Prudential Securities, who rates Apple "hold." "I don't see
how this gets better from here."
Adding to Apple's inventory challenge is the fact that it's now selling the
same computer in five colors: strawberry, blueberry, tangerine, grape, and
lime. Forecasting how many of which model to produce without having too
many leftover systems in unpopular colors could pose a problem for the
company.
Some analysts strongly discount worries over inventory management, and have
even raised earnings estimates today.
"We think that Apple's momentum this year continues to be strong," said Lou
Mazzucchelli at Gerard Klauer Mattison, who raised his price target on
Apple shares to $60 from $55 and upped earnings estimates as well.
"I don't think the channel was stuffed," Mazucchelli said. "Apple stopped
production three weeks before the quarter ended" as it transitioned product
lines and business management software, he said. "There would've been a
gaping hole had Apple not put stuff into the channel."
For the most part, inventory of the multi-colored iMac's hasn't arrived at
dealers yet, and neither have the new Power Mac G3s, he said, all
indications that inventory levels are normal. "We think the product
transition worked fine," Mazzucchelli stated.
Peter Godfrey, chief executive of computer retailer Micro
Warehouse, said: "Between the new iMacs and lower prices for the old ones,
we're going to see an expansion of the market that will take care
of anything left in the pipeline." Macwarehouse is currently
selling the oldest model of
the iMac for $999, down from the original price of $1,299.
Apple CFO Fred Anderson attempted to address analyst concerns yesterday in
a conference call.
Currently, the new iMacs are sold in "five-packs, one in
each color," he said, which will minimize Apple's risk in getting stuck
with unpopular colors, though not the dealer's. Early research shows that
blueberry and grape are the two most popular iMac colors right now; are
dealers going to get stuck with a stockpile of lime?
Eventually, Apple expects to be able to take orders for individual colors--a
harbinger of a model in which Apple moves completely to a
configure-to-order model of manufacturing similar to direct vendor Dell.
"There's always potential forecast risks," Anderson cautioned. Still,
analysts were told the company's goals are to maintain four to six days of
inventory on its books, which would still "place us in an industry leading
position," he noted.
As for iMac pricing, Anderson said: "Certainly we view the iMac family as
our growth product family, so we need to be aggressive going forward in
terms of pricing," while declining to state when or how aggressive Apple
would get.
Bloomberg contributed to this report.