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Apple Stock Falls, Chicken Little Panics

Whenever we take a week off, we worry that we’ll end up doing just as much work as ever keeping up with breaking news events. But last week was notable mostly for the media thrashing that followed Apple’s warning on 28-Sep-00 that quarterly revenues would be between 6 and 9 percent below analysts’ expectations, and that profits (before any investment gains) would be off by as much as 33 percent. (Apple will report actual numbers on 18-Oct-00.) The market reacted strongly, immediately driving Apple’s stock price down from about $53 to $25 and keeping it in that range all week (it closed today at $21.75, a new 52-week low).

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What could possibly cause Apple’s valuation to drop by more than half so quickly? Apple’s CFO Fred Anderson blamed the missed expectations on a worldwide sales slowdown, lower than expected education sales in September, and slower than expected Power Mac G4 Cube sales.

The worldwide sales slowdown echoes comments made by Intel and Dell in similar warnings that hurt their stock prices as well, though not as badly. If this is true across the board, it could prove troubling for the entire industry. Plus, Apple turned over nearly its entire product line in this quarter, and the uncertainty and availability problems associated with model turnover couldn’t have helped. The dual-processor Power Mac G4s may also have caused some purchasing confusion, since people may wait until they see how Mac OS X takes advantage of the dual G4 processors before buying a new machine.

The reason for Apple’s lower than expected educational sales is more clear. Schools generally buy computers before classes start in August and September, but Apple chose to release new iMac models in mid-July at Macworld Expo. That hurt general iMac availability somewhat before and shortly after the introduction; even worse, the $799 iMac didn’t ship until several weeks into September. At roughly the same time, Apple also released new iBook models, which are aimed in part at the education market too. Student purchases might be picking up now, but it would be hard to fault schools for waiting until the December holidays to purchase and install new systems.

As we pointed out in July (see "Can Innovation Become Business As Usual" in TidBITS-540), the G4 Cube is simply a bit too pricey right now, costing more than a comparable Power Mac G4. Apple clearly hoped that the G4 Cube’s stylishness and silent operation would warrant the extra money, but that hope seems not to be true. A price cut in time for the holiday buying season could address that concern. It’s worth remembering that Apple did fine before the release of the G4 Cube; so as long as the company’s other products continue to sell well, slow G4 Cube sales shouldn’t be overly alarming.


Apple’s warning is clearly not good news, but Wall Street has overreacted. It’s not as though Apple will be losing money for the quarter – in fact, the company is expected to announce profits in the range of $110 million, not including potential sales of shares in ARM Holdings plc., which the company has exercised during each of the past six quarters. Rather, the reaction is just the product of a mismatch between analysts’ profit and revenue expectations and the associated reality. Apple has $4 billion in cash and a proven product line, so gloomy media predictions of a death spiral are just sensationalist panderings.

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