AAPL Cut In Half By Yesterday's Profit Warning

by , 11:00 AM EDT, September 29th, 2000

Apple said that sales hit the skids during September in a profit warning issued yesterday afternoon. This morning Apple's stock opened an amazing $27 lower at around $26, a -50% drop and a brand new 52-week low as panicked investors hit the sell button. Volume at 11:00 EST is already running at 45 million share traded, that 10 times the average volume for a whole session and the day isn't half over.

Of course, a batch of clever analysts who follow Apple rushed to downgrade the stock after the fact this morning. Thanks for the news, guys.

This is the first time Apple has missed earnings in over a dozen quarters and the biggest one day drop in Apple's stock price ever.

Apple said to look for revenues between $1.85 and $1.90 billion, instead of the $2.1 billion consensus forecast, with earnings per diluted share, excluding investment gains, between $0.30 and $0.33, instead of the consensus estimate of $0.45. In spite of the bad news revenues are still slightly higher from the 3rd quarter's $1.83 billion.

Fred Anderson, Apple's CFO said, "Three factors contributed to our revenues and earnings coming in below expectations. First, we experienced lower than expected September sales due to a business slowdown in all geographies. Second, our Education sales, which normally peak during September, were lower than expected. And third, our Power Mac G4 Cube is off to a slower than expected start, resulting in revenues below expectations. We are currently re-evaluating our plans going forward, and will provide lower growth targets for next quarter and the next fiscal year when we announce our final results on October 18.''

As quoted by a PRNewswire article, Steve Jobs commented, "We've clearly hit a speedbump, which will result in our earning, before investment gains, approximately $110 million rather than the expected $165 million for the September quarter. Though this slowdown is disappointing, we have so many wonderful new products and programs in the pipeline-including Mac OS X early next year-and remain positive about our future.''

Banc of America Securities said, there is likely no quick fix for Mac demand problems. They downgraded Apple to market performer from strong buy, saying FY 4Q revenues will be about 10% below expectations.

Bloomberg said Apple was listed as a "trading sell" by analyst Research Committee at Hornblower Fischer AG in Frankfurt, Germany.

Bear Sterns concerned by the negative picture painted by Apple's management cut its rating on five PC manufacturers. Andrew Neff of Bear Sterns issued this note to clients about 10:00 am EST:

"We are downgrading APPL from Buy to Neutral. APPL yesterday (9/28/00) pre-announced a revenue and earnings shortfall and indicated lowered growth expectations going forward owing to three reasons: weaker September results in all geographies, lower than expected education sales, and a slower than expected start to its Power G4 Cube. Management did not hold a conference and -- citing the new Reg FD -- did not elaborate beyond its press release. The company indicated that it will give new -- lower -- guidance when it reports earnings on October 18. Although the stock will open significantly lower, we are downgrading to neutral for the following reasons: (1) it is becoming increasingly clear that there are macro-level problems in Europe and consumer, which are critical for Apple, (2) Apple's outlook depends on the potential for growth of its platform, its own new product momentum and visibility, its ability to make the shift from a turnaround to a growth company -- which will all be subject to question, and (3) the lack of visibility, both near-term and longer-term, will limit upside. On the first point, while our conversations with companies, vendors and customers are still inconclusive, we believe that macro-economic evidence and common sense argue for caution until we see evidence indicating the potential for positive surprises or better visibility. In terms of specifics, APPL said its revenues would be between $1.85-$1.9 billion (our forecast was $2.1 billion) and earnings excluding gains in the range of $0.30-$0.33 vs. 0.25 the year before (our estimate was $0.45). The company indicated that it will provide lower growth targets for next quarter and next fiscal year, FY01. As noted, APPL did not give any guidance beyond the prerelease. On a preliminary basis, we are lowering our estimate for FY01 from $2.15 to $1.45 and our revenue estimate from $9.77 billion (a 19% gain) to $8.77 billion (an 8% gain). These numbers are subject to revision after the company reports on October 18."

The Street.com quoted Jeff Matthews, a short trader, "It's a shocking preannouncement because it's so bad. But it's not shocking in the context of Eastman Kodak (EK), Intel and Dupont (DD). The most interesting thing Apple said was that there was a sudden slowdown in all geographies all over the world. That's exactly what Eastman Kodak said the other day. I think we're having a slowdown worldwide right now."

Stay tuned for late breaking news.

Apple