Apple Closes Higher Monday On Talk Of Faster IBM Chips

Market Analysis

On Thursday and Friday the market cheerfully reacted to a smattering of positive corporate and economic news and gave the major market indexes their first winning week after six consecutive weeks of losses. This week marks the high point of the quarterly reporting season and traders will be looking for signs that corporate revenue and earnings growth has firmly taken hold and that the economy is set to show renewed growth.

The weekend bombing in Bali and the apparent terrorist attack on a French oil tanker off the coast of Yemen has kept attention on world affairs. The US Congress handed President Bush a major victory in his effort to find domestic support for his campaign against the political leader of Iraq. Following the vote that gave President Bush congressional support for the use of Americais military, leaders of both major political parties urged the president to turn his attention to US economy. Political debate on the use of military force in Iraq has overshadowed issues concerning the economy as America readies to go to the polls for the biannual congressional election.

The Economy

Among the many domestic economic issues needing attention is the debate over an extension of unemployment benefits for workers impacted by the slow economy, terrorism insurance to spur new spending and investment and a clear resolution to the labor dispute that threatens the operations of West Coast seaports. Traders will be looking for decisive government action and meaningful federal economic policies that will encourage corporate America to invest and to spend while improving the level of consumer confidence ahead of the important holiday shopping season.

Monday Trading

In early Monday trading the market moved generally lower after digesting two days of spectacular gains. Despite the late-week run up in prices, the market must now confront systemic worries about the economy. Traders remain cautiously optimistic that the worst for the market is over as the major market indexes move off of five and six year lows. On Monday, Ford and GM fell sharply as analysts downgraded the companies ahead of their quarterly reports.

In afternoon trading the market moved modestly higher but the major indexes tested their opening levels later in the day. At the close of trading the indexes recorded modest gains on the day.

On Monday the Dow Jones Industrial Average ended at 7,877.40, up 27.11. The S&P 500 Index finished at 841.44, higher by 6.12. The NASDAQ Composite Index rose 10.06 to close at 1,220.53. On Monday Apple moved higher .26 and ended the day at 14.77 .

IBM (Again)?

The Mac world is abuzz today with speculation that Apple will be moving its pro-level products to a new IBM 64-bit processor. Not only would a switch to 64-bit processing leap frog the processing power of virtually all Intel and AMD chips, the move would also reestablish Appleis chip partnership with Big Blue. IBM owns the PowerPC trademark and the Apple-IBM-Motorola partnership (a/k/a the "AIM" partnership) produced the RISC-based chips now used in all Macintosh computers. Please read more about Apple and the new IBM chip in our TMO report, as well as our follow-up report concerning Mac community commentary and a look at IBMis specs for the processor.

Appleis Quarterly Results

On Wednesday, following the market close, Apple will release its fourth fiscal quarter financial results. The consensus estimate of fourteen of the nineteen analysts who currently track the stock is for earnings of US$.02 per share. In the July conference call with analysts, Appleis CFO Fred Anderson suggested that Apple might report a nominal loss for the September quarter due to write-downs of the companyis investments in Akamai and Earthlink and one-time charges for layoffs at Appleis Sacramento plant.

We are running a poll in the Apple Finance Board forum for readers to express their own view as to whether or not Apple will meet or exceed Wall Streetis consensus estimate for the quarter when results are released on Wednesday. The strong sales of Mac OS X, 10.2 and the revenue generated from Appleis .Mac fee-for-service program may put Apple in the black despite the extraordinary charges.

Eleven Wall Street analysts currently rate Apple as a "hold", while one analyst rates the company as a "sell". Appleis conference call with analysts following the release of the companyis quarterly numbers is an opportunity for management to change the minds of the analysts who hold a bearish view of Appleis chances to significantly increase revenue and earnings anytime soon. Analysts will be looking for firm guidance from Appleis management concerning the companyis anticipated growth in revenue and earnings for the December quarter.

Brother, Can You Spare A Billion?

At todayis share price, Apple is trading with a market value above its cash on hand of about US$900 million. The Mac Observer offers a look at Appleis depressed share price and what might be involved if someone desired to acquire Apple Computer at todayis bargain basement price.

One More New Store

This weekend Apple will be opening a new retail store in Orlando, Florida. By year-end Apple will have about fifty retail stores open for business in key geographic locations. The success of Appleis retail store strategy is important to the companyis continuing efforts to increase consumer market share for the Mac.

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