ATR Analyst Downgrades AAPL to Hold

American Technology Research (ATR) analyst Shaw Wu downgraded Apple Computer to a iHoldi Thursday morning. While acknowledging Apple Computeris fundamental strength, Mr. Wu told his clients that Appleis slowing top-line growth, or revenue growth, and the high expectations that investors have had for the company give him concern going forward.

Mr. Wuis comment emphasized investor expectations in his comments, saying that, "While AAPL upsided its EPS guidance by 14 cents and revenue by over US$300 million, we believe that investors are not satisfied with these results and may have baked future big upside expectations into AAPLis stock price."

He also said that year over year growth could slow to 12-15% in fiscal i06, which is much slower than the 70% from the current quarter.

"As a result," Mr. Wu wrote, "we believe AAPLis trading multiple may compress."

Product availability for Appleis hottest products -- including iPod, iPod mini, iPod shuffle, and Mac mini -- has also been improving, according to retail spot checks ATR has conducted. Mr. Wu said this could be attributable to increased production on Appleis part, but that he thinks it is actually slowing growth.

The key thing about Mr. Wuis comments concerning top-line growth is that he sees the rate of growth slowing, as opposed to projecting decreases in Appleis product sales. This is important because much of Appleis gains during the last 12 months have come from the sharp increases in Appleis sales. Even with that increase in sales, however, the companyis price to earnings ratio (P/E) was still higher than other tech companies as investors looked for Apple to continue to have those sharp increases.

What Mr. Wu said, and indeed Apple executive themselves said in Wednesdayis conference call, that company sales growth may be flattening, which detracts from forward-looking P/E gains already built into the stock.

Mr. Wu recommends on iHoldi on the stock.

Appleis stock has been hit hard Thursday by a massive sell-off. In early afternoon trading, Apple was trading at $37.40 a share, down $3.64, or 8.87%, on strong volume of almost 70 million shares trading hands.

*In the interest of full disclosure, the author holds a small share in APPL stock that was not an influence in the creation of this article. ?

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