Solomon Smith Barney Says Apple Will Hit Q2, Q3 Will Be A "Challenge"

| Apple Stock Watch

Richard Gardner, an analyst with Solomon Smith Barney, and a long-time analyst following Apple in particular, has issued an earnings preview for Apple. Mr. Gardner says that the company will meet estimates for the current quarter, but that the June quarter, Appleis fiscal third quarter, will be a hard one for the company. "We believe Apple will report earnings in line with the current consensus of $0.03 (versus our estimate of $0.06)---the company may even deliver a penny or two of upside," says Mr. Gardner. "Unfortunately, we believe a solid March quarter will be followed by a more challenging June quarter."

Apple will be announcing their March quarter results in a conference call tomorrow at 2:00 PM, PST.

Mr. Gardner thinks weak consumer demand and US retail sales that have been particularly weak for Apple have had a major impact on the company. He cites PC Data figures which say Apple saw a 36% sequential decline in Appleis retail sales and a 49% drop in year over year retail sales. On the other hand, iMac sales for the quarter are actually up 14% over the December quarteris miserable results, though they are still 49% lower than 2000is March quarter.

Adding to Appleis woes, Mr. Gardner thinks that the companyis pro market will actually be hurt by the strong offerings from Apple in late 1999 and early 2000, and that this will "keep most pro buyers on the sidelines." To read between the lines, Mr. Gardner is suggesting that Appleis current professional PowerMac G4 models are not compelling enough to convince many professional buyers to upgrade. Mac OS X will also impact Appleis Q3 results. "Pros may defer upgrades pending availability of systems pre- loaded with Mac OS X and the porting of their key applications to the platform," says Mr. Gardner.

Titanium PowerBook sales helped Apple in the March quarter, but, says Mr. Gardner, "the PowerBook alone will likely not allow Apple to achieve current consensus estimates for the June quarter. While we are optimistic about demand for the new PowerBook Titanium and Mac OS X upgrades, we believe the contribution from these two items will be overshadowed by weakness in other product categories and/or is already fairly reflected in our estimates."

The report concludes by saying Apple will be trading in a narrow range and suggests that investors take profits should there be any positive movement after Wednesdayis announcement from Apple. According to Mr. Gardner, "While Apple shares seem inexpensive, we believe current revenue and earnings estimates will prove aggressive and would use any significant rise in the shares following Wednesdayis announcement as an opportunity to take gains."

Solomon Smith Barney maintains a Neutral, High Risk Rating for Apple and a target stock price of US$24.

For other stories regarding Appleis stock activity, visit our updated Apple Stock Watch Special Report. You can also check out our Apple Financial Boards, where we have a thread on this topic.

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