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AAPL Jumps On Favorable SoundView Analyst Comments

Apple Stock Watch - AAPL Jumps On Favorable SoundView Analyst Comments

by , 7:00 PM EDT, May 22nd, 2002

SoundViews Raises Apple Estimates

In late breaking news on Wednesday, SoundView technology analyst Mark Specker raised his earnings estimates for Apple. According to a report from CBS MarketWatch, Mr. Specker raised his revenues and earnings estimates for Apple's third fiscal quarter based on evidence that the production of the new iMac got off to an early start this quarter following production delays in Apple's second fiscal quarter. AAPL closed up $.86 on the news.

Mr. Specker is the second analyst this week to raise earnings estimates for Apple. On Monday UBS Warburg analyst Don Young raised his earnings estimates for Apple's third fiscal quarter and current fiscal year. Please see Monday's Apple Stock Watch Report for more information.

The Broader Markets

In early Wednesday trading the major indexes moved up and down in a narrow trading range as investors looked for direction following Tuesday's sharp sell off. On Monday and Tuesday the markets pulled back from last week's gains due to well-publicized concerns about the possibility of new terrorist attacks and the market's inability to find leadership in key sectors of the economy to sustain a broad market advance. On Tuesday Home Depot reported a sharp increase in earnings but traders punished the stock because management failed to provide optimistic guidance moving forward. Investors are growing increasingly impatient with vague estimates of future corporate performance and are responding with harsh treatment of the stocks of companies that fail to provide favorable guidance moving forward.

Major Market Indexes

In late afternoon trading on Wednesday the markets moved into positive territory with Sun Microsystems jumping in anticipation of news from its mid-quarter conference call with analysts scheduled for tomorrow and following the release of a major upgrade to the company's Solaris operating system. The Dow Jones Industrial Average closed at 10,157.88, up 52.17. The S&P 500 ended up 6.14 at 1,086.01 and the NASDAQ Composite Index moved higher 9.27 to close at 1,673.45. AAPL finished up $.86 at $24.32.

The Microsoft Anti-Trust Trial

The remedy phase of the Microsoft anti-trust is entering its final stages. The case is currently on hiatus pending a review of the testimony and a decision by Judge Kollar-Kotelly expected no sooner than the middle of June.

The original decision by Judge Jackson to breakup Microsoft was sent back to the District Court by the Circuit Court of Appeals. The Circuit court did not change Judge Jackson's ruling that Microsoft had illegally used its monopoly power to thwart rivals, but did take issue with his decision to order a breakup of the company. The Circuit Court specifically asked that the case not be reassigned to Judge Jackson due to his apparent bias in his remedy decision and publicly stated dislike for Microsoft and its executives.

By most accounts Judge Kollar-Kotelly has been methodical and thorough in her work. The Justice Department and roughly half the states that were party to the original Microsoft anti-trust suit had reached an agreement with Microsoft to settle the case. However, nine states, often referred to as the "dissident states", chose not to join the settlement and have aggressively pursed additional remedies during this phase of the case, fearing that the agreement reached between Microsoft and the Justice Department did not go far enough in restricting Microsoft's conduct and reestablishing a competitive marketplace for companies and products that compete with the Redmond, Washington-based software giant.

Much of the testimony in the final weeks of the remedy phase of the trial centered on the desire of the dissident states to compel Microsoft to release a modular version of Windows that could be customized by PC makers with non-Microsoft products such as third-party media players without fear of retribution from Microsoft. Judge Kollar-Kotelly has given few clues as to remedies she will order when her decision is released next month, but she appears to have allowed both sides to introduce as much testimony as is practically possible knowing that her decision has a strong likelihood of being reviewed on appeal.

The nine states pursuing additional remedies in the case include: California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, plus the District of Columbia.

Is Judge Kollar-Kotelly's Pending Decision Anti-Climactic?

While the world waits on Judge Kollar-Kottelly's decision, some have observed the real impact of the Microsoft case was in Judge Jackson's original ruling that Microsoft had abused its monopoly status. The court's determination that Microsoft did have a monopoly in the desktop OS market saves potential plaintiffs possibly years in court and millions of dollars in legal fees to establish that fact. Potential plaintiffs need only prove that they were injured by Microsoft's illegal use of its monopoly power.

Over the past few months companies such as AOL Time Warner and Sun Microsystems have filed suits against Microsoft, basing their suits at least in part on Judge Jackson's original determination. Microsoft has paid out hundreds of millions of dollars in legal fees and chances are ancillary law suits will continue long after the original anti-trust suit completes its way through the courts.

The Revenge of Big Blue

Saying the Microsoft anti-trust case is about operating systems and Web browsers is like saying World War II was about the Battle of Midway. No doubt the fierce naval battle for the control of remote islands in the middle of the Pacific Ocean was a pivotal moment in the war and control of the islands was important to the Allied war strategy, but the full importance of the Battle of Midway became clear only later in the war. It was the first strategic advance toward victory for the Allied forces in the Pacific theatre. It was the first of several key battles that determined the outcome of the war.

IBM, which gave the keys to the software kingdom to Microsoft twenty years ago and suffered staggering losses in the early 90's as a result of its decision, has regrouped and has focused much effort on a new Linux initiative. As IBM learned the hard way, the operating system is the "on ramp" to the information superhighway and the interface through which commerce is conducted and information is distributed and shared.

Earlier this month IBM inked a deal with Akamai for the Cambridge, Massachusetts-based provider of global Internet services to offer EdgeSuite for Java on IBM's WebSphere middleware solution.

Akamai, a name synonymous with the dot.com boom and bust, has continued to develop high-quality Internet content delivery services. Though much smaller in size than the company about which investors dreamed as they poured in billions in early investment dollars, Akamai has won the business and loyalty of many Fortune 500 companies.

Big Blue is slowly and methodically retracing the steps it took twenty years ago. They understand the importance of, and the profits involved in, the software component of their enterprise solutions. They are picking their partners much more wisely.

Apple's Step Back To The Future

Apple's important decision five years ago to purchase NeXT and turn to the Mach Kernel and UNIX as the foundation of its future modern operating system is only now becoming clear. The UNIX pedigree of Mac OS X allies Apple with the large enterprise solution providers and well-financed developers who design UNIX-based products.

Further, AOL Time Warner has reportedly dropped Microsoft Internet Explorer from the new beta version of its AOL software for the Mac in favor of AOL's own Netscape browser. This may be among AOL's first steps to retake the browser market by making Netscape the primary Web portal for its millions of customers. Months ago rumors had AOL Time Warner buying Red Hat Linux and fashioning a Linux-based product that would run on top of Windows to support a later version of AOL software.

Apple's release of Xserve, a new MacOS X-based rackmount server will probably not launch the company headlong into the enterprise market. But it will find success in large schools and districts, research labs and large design firms that would like to standardize on the Mac.

In time, Xserve, OS X and the work of developers to port more UNIX-based applications to the Mac may provide Apple will a competitive foothold in the enterprise market.

Microsoft's Multi-Front War

Microsoft is battling in court, in the highly competitive game console market and for share against Unix and Unix-based Linux in the enterprise market. Microsoft will continue to make a profit and continue to be a strong force in the software and OS market. But new competitors have appeared and industry stalwarts such as IBM and large competitors such as AOL Time Warner are working to change the landscape.

It may not be Judge Kollar-Kotelly's decision next month that makes the most changes in the way that Microsoft operates in the market. It may be time and the lasting effects of Judge Jackson's original determination that Microsoft is a monopoly that has used its position in an illegal way that has the most impact on the company and its position in the marketplace. Next month's decision may only hasten the changes that have already begun to take place.

Like the outcome of the Battle of Midway, the effects of the Microsoft anti-trust case may best be viewed in hindsight as the battles move forward and to new fronts. Battling in court and in new markets while fending off advances in its established markets have taken a toll on Microsoft's earnings growth. Microsoft continues to grow, but not at the same pace and in the same manner that it did years ago.

In Wednesday activity on Wall Street:

Apple (AAPL) finished up $.86 at $24.32.

Akamai (AKAM) closed down $.09 at $2.18.

AOL Time Warner (AOL) ended off $.03 at $18.55.

IBM (IBM) was up $.55 at $84.00 when the closing bell rang.

Microsoft (MSFT) moved higher $1.50 to close at $53.69.

Check out the new and vastly improved Apple Finance Boards, a moderated forum for Apple Investors and people who are interested in Apple's financial dealings!

For full quotes on all the companies mentioned in this article, we have assembled a set of stock quotes at Yahoo! for your reference. For other stories regarding Apple's stock activity, visit our updated Apple Stock Watch Special Report.

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