Pomp And Economic Circumstance

The markets moved higher at opening on Wednesday as traders discounted the rumors that Cisco Systems would join the litany of technology companies issuing 1st quarter warnings that revenues and earnings will be significantly below market expectations. AAPL opened higher on Wednesday inline with the broader markets. At the closing bell AAPL was up $.56 at $24.66. Apple will release its quarterly results next Wednesday, April 17th. The results will be featured in a special Apple Stock Watch report that evening.

The Dow Jones Industrial Average (DJIA) ended the day at 10381.73, up 173.06 in a broad-based rally sparked by investor interest in highly cyclical stocks. The tech-heavy Nasdaq Composite Index closed at 1767.07, up 24.50 on the day. Softness in software stocks limited the Nasdaqis gains.

Weive heard the reports from various government agencies, Bush Administration officials and members of the Federal Reserve Board that the nationis economy is well on its way to recovery. In fact, key indicators including employment numbers, consumer confidence and a recent upward revision to the growth in the Gross Domestic product (GDP) for the 4th quarter of 2001 point to a vibrant, healthy economy in 2002. On Wednesday, traditional retailer Sears, Roebuck & Co. announced it would handily beat Wall Street earnings estimates for the quarter by more than 50% and reward investors with a doubling of earnings per share from the prior year period. Sears closed at $54.18, up almost 6 percent in very active trading of more than three times average daily volume.

But for all the pomp and public proclamations of economic growth, the technology sector is dealing with a different economic circumstance. In Mondayis Big Blues Apple Stock Watch report, we mentioned IBMis first profit warning in over a decade. On Tuesday, Nortel Networks issued an earnings warning of its own.

Why is the technology sector so slow to recover from the recession and find renewed growth?

In a statement released to the press by IBM at the time of its profit warning, John R. Joyce, senior vice president and chief financial officer, stated, "The business environment remains very tough. We saw a continued slowdown in customer buying decisions in the first quarter. The first quarter traditionally is the weakest period of the year for technology purchases, and many of our customers chose to reduce or defer capital spending decisions until they see a sustained improvement in their businesses".

In recent comments at a business conference in Chicago, Christopher Galvin, CEO of Apple chipmaker Motorola, looks for substantial economic growth to begin toward the latter part of 2002 and strong growth to continue into 2003. Technology companies, according to industry leaders, will begin to see growth in sales after their customers see real growth in their own sales. The technology sector of the economy may lag other sectors in experiencing an up tick in orders and economic activity.

How does this impact Apple?

Most of Appleis sales are to consumers and professional content creators. Apple may see sales and earnings growth earlier than many of its hardware competitors. But markets crucial to growth in Appleis market share and industry influence such as education and the enterprise market may be slow to respond to increased activity in the economy. Customers who are working from budgets adopted more than a few months ago may take awhile to place orders for new hardware and sign contracts for new services.

Appleis upcoming World Wide Developers Conference (WWDC) may yield clues to Appleis strategy to reestablish itself as a force in the enterprise market. We will be closely monitoring the release of Appleis quarterly results on April 17th, the annual shareholdersi meeting on April 24th and important announcements made at the WWDC, which runs from May 6th through the 10th.

In todayis activity on Wall Street:

Apple (AAPL) closed at $24.66, up $.56, but still shy of closing above that magical $25 mark.

Dell Computer (DELL) finished Wednesday at $26.84, up $.27. The direct-to-consumer PC maker continues to hold its own in the face of a challenging market for PC sales.

Earthlink (ELNK) closed at $9.45, down a penny. Appleis primary Internet service partner is trading at the low-end of its 52-week range of $7.81 - $18.92.ELNK is recovering from the low it set early February.

IBM (IBM) ended the day at $89.01, up $1.27. Big Blue has yet to recover in a meaningful way from Mondayis sharp sell off which sent the stock down more than ten percent in value.

Motorola (MOT) was at $13.85 when the closing bell rang, unchanged from Tuesdayis close. The company will Web cast its quarterly results on April 17th.

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