Big Blues

The markets were sent into a tail-spin this morning by a profit warning from IBM. It was the first profit warning from Big Blue in over a decade. The global computer giant announced that quarterly revenue would be down over $1 billion from previous forecasts to about $18.6 billion and net earnings would be off about 20% to $.66 to $.70 per share.

IBM’s shares plunged more than 10% in early trading, setting a new 52-week low. Since reaching a 52-week high of $126.39 in January, Big Blue’s share price has lost 30% of its value. IBM is a major component of the Dow Jones Industrial Average (DJIA). The disappointing news from Armonk, NY sent the Dow down dramatically in early trading. The index recovered much of its loss by early afternoon and finished at 10,249.08, down 22.56. IBM closed Monday at $87.41, down $9.84. The tech-heavy Nasdaq Composite Index was off early in the day but reversed course to close up 15.84 at 1,785.87.

Earlier today Apple announced that it had shipped almost one-half million Macs with SuperDrives™ that can record to both DVD-R discs and CD-R/RW discs. Apple’s FileMaker subsidiary also announced that total shipments of FileMaker have topped 7.5 million units including 750 thousand units of version 5.5, the latest release of the popular database product. AAPL closed at $24.56, down $.18 after falling well below the $24 mark following the IBM warning.

Although the pace of the recovery in various sectors of the economy is still unclear (as IBM’s profits warning indicates), the fact that the economy in general has returned to a growth phase is not in doubt. Analysts are now concerned the Federal Reserve Board will begin to tighten the money supply and increase interest rates. The FRB Web site provides useful information about the government agency whose interest rates decisions in response to economic weakness have done as much to impact Apple’s earnings as the economy itself.

Softness in the economy and the resulting reduction in interest rates have hurt Apple’s earnings. Not only did the first economic recession in a decade cost Apple and other PC companies sales, it also significantly reduced the earnings on the company’s roughly $4.4 billion in cash and equivalents. As interest rates rebound from levels not seen since the 1960’s, interest and earnings on Apple’s substantial cash assets will positively impact the company’s profits. Prior to the sharp drop in interest rates, earnings on Apple’s cash buttressed the company’s earnings during times of product transitions.

In last Wednesday’s report called High Tech: Low Volume, I mentioned PowerSchool, Apple’s Internet-based Student Information System designed for schools and school districts. The education market is crucial to Apple’s financial well being and the company’s continuing efforts to regain lost market share.

Today I’d like to mention Mac OS Labs. The Web site offers educators and school technology personnel with information on setting-up Mac OS X labs in education environments. OS X has inspired renewed in the Macintosh platform among academicians and researchers at a number of top colleges and universities. We will be following developments in the education market in this column and the Apple Finance Board forum.

In other activity on Wall Street:

AMD (AMD) ended the trading day at $13.75, up $.25. Concerns about slow growth in the PC market keeps AMD’s shares trading at the low-end if its 52-week range. AMD’s 1st quarter conference call with analysts is scheduled for next week.

Adobe Systems (ADBE) was trading at $38.86, up $.99 when the closing bell rang. According to analysts, ADBE’s performance over the next few quarters will be directly tied to the sales of Photoshop 7, the first major upgrade to the image-editing software in two years.

Intel (INTC) finished Monday at $29.93, down $.12. The chip maker is expected to hit its quarterly targets but maintains a conservative view of the market moving forward.

Oracle Systems (ORCL) continues to struggle in a challenging market. The number two software make has been faced with greater competition at a time of declining sales. ORCLis closing price of $12.34 on Monday is just above its 52-week low of $10.16.

Please follow our daily AAPL trading reports in the Apple Finance Board Forum.