The Nasdaq Falls as Panic Grips Apple's Investors

Theyire calling it the Apple Effect on Wall Street, as word of a Mac sales tumble sent shock waves across the Nasdaq on the last trading day of the quarter. But the bad day most tech stocks had paled in comparison to the bloodbath Apple investors endured. Shares of AAPL plunged in value by 50% overnight and trended lower through out the day.

Brokerage firm downgrades began to roll in this morning. Investors and analysts were rushing to disassociate themselves from the Apple catastrophe, in a wave of selling and downgrades of the likes rarely ever witnessed for a major corporation with eleven robust quarters under its belt.

Investors wondered whether Appleis sales shortfall., in conjunction with other earnings warnings from almost every sector, could be a the early signs of a downturn in consumer demand. Analysts rushed to downgrade other PC manufacturers as well.

Other analysts said they told us so -- claiming the problem is Apple has saturated the demand from its installed based of users and the Mac platformis rate of growth isnit great enough to sustain earnings growth at the recent pace. C/NET News analyzed, "Although Apple has gained market share in the past two years, the company still sells a substantial number of systems to its existing customer base looking for a technology refresh. Because existing customers buy new products at a slower rate than companies churn them out, some analysts say, a slowdown was inevitable."

Hereis a list of analysts closing the door to the barn after the horse has left, so to speak. SG Cowen lowered AAPL from a Strong Buy to a Buy. Salomon Smith Barney dumped AAPL from a Buy to Neutral rating. Morgan Stanley Dean Witter ran for the hills downgrading AAPL from Outperform to Neutral. PaineWebber lost their attraction to the stock lowering it from Attractive to Neutral. AG Edwards lower their rating from Accumulate to Maintain Position, as if it were better to accumulate at $55, but not at $26. Bear Stearns shifted from Buy to Neutral, offering investors the same sort of paradoxical advice. Merrill Lynch, and Banc of America also fled the scene. Did I miss anyone?

While AAPL may be a screaming buy at the $26 level, itis not an investment for those with a weak stomach. Until further details and forecasts come from Cupertino, the stock could churn in a new much depressed trading range. Meanwhile, the emergent uncertainties of the Mac OS X migration and the G4 Cubeis hairline fissure problem have sown further doubt about Appleis near-term growth potential.

If you have a year-long horizon AAPL is a definitely double your money play from here, however there are no guarantees that things arenit going to get worse before they get better in the short term. All the news isnit out yet.

Apple sank faster than the Titanic, down 27 3/4 to close at 25 3/4 on mind boggling volume of 132.4 million shares trading hands, making AAPL the most active issue of the session. AAPL hasnit traded this low since August of 1999. The companyis market capitalization has been cut in half. AAPLis Price-to-Earnings ratio is now about 13.7.

Appleis earnings warnings isnit just a problem isolated to this quarter. Fred Anderson did say, "We are currently reevaluating our plans going forward, and will provide lower growth targets for next quarter and the next fiscal year when we announce our final results on October 18.ii

In other news today, The Wall Street Journal reported that Apple is considering opening its own store chain to expand its retail presence:

"Apple intends to open its own stores in some of the bigger U.S. cities, aiming particularly at the top five to 10 markets, according to several people who said Apple executives have briefed them on the plan over the past few months. The stores probably would carry minimal inventory and act primarily as a showcase for the Cupertino, Calif., company’s sleek computers, which likely would be shipped to customers’ homes from a central facility, they said. The project’s time frame is unclear, and Apple may still decide not to go through with it, these people said."

The Nasdaq powered down 105 points (-2.80%) to close at 3672 on volume of 1.9 billion shares. CNBC pointed out this has turned into the worst September for the Nasdaq in over 20 years, down 12% just this month.

The Dow fell 172 points (1.59%) to close at the dayis low of 10650 on volume of 1.13 billion shares.

The S&P 500 dropped 21.78 points (-1.49%) to close at 1436.51.

In Apple related businesses: Akamai climbed a dollar to 52 33/64, beating todayis downdraft because of their oversold position combined with other good news. Adobe fell 5 1/4 to 155 1/4. Earthlink fell 11/16 to 9 1/8, just a 1/4 point above their 52-week low. Motorola gained 3/16 to 28 1/4.

IBM fell 2 3/4 to 112 1/2. Appleis woes combined with news that, "The U.S. Navy said Friday it was postponing the award of a contract worth up to $16 billion for computer services amid congressional qualms over feared job losses in some lawmakers districts," according to Reuters.

Appleis competitors: Gateway shed 7 dollars to 47 after getting slammed with three downgrades.

Compaq gave back .65 to 27.60. On the heels of Appleis miss earnings, CPQ received downgrades by AG Edwards and Bear Stearns.

Dell fell 2 5/8 to 30 13/16, a dollar lower than the previous 52-week low. The same two brokerages downgrade Dell too.

Shares of Microsoft lost 1 to 60 5/16. Intel fell 2 7/8 to 41 9/16. Hewlett Packard lost 6 13/16 to 97 dollars.

The Mac Observer Stock Watch Virtual Portfolio set a new low for the year.

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our Apple Stock Watch Special Report.