Apple Plunges After Downgrades: Slowing Demand, Crappy Economy

Dan Frommer | September 29, 2008 10:13 AM

imac-hello-again.jpgApple (AAPL) shares are down 14% to around $110 -- their lowest since May, 2007 -- after Morgan Stanley and RBC both downgraded the stock this morning. Why? Mostly slowing demand and lousy economic conditions.

  • RBC's Mike Abramsky says his bank's latest consumer survey shows Mac purchase intentions for laptops and desktops "suddenly moderating" from August -- "the biggest declines in 2.5 years." And more broadly, 40% of people plan on spending less money on electronics in the next 90 days -- "the weakest outlook ever seen." Abramsky trimmed his Mac outlook.
  • Morgan Stanley's Kathryn Huberty points out that the remaining source of growth in the PC market is in the sub-$1,000 market, where Apple currently sells no laptops.

Both note that the crappy economy means lower multiples for growth stocks like Apple -- which means things could get worse before they get better.

One potential source of good news: Apple is expected to unveil new laptops in the next two weeks, which, if priced right -- perhaps under $1,000 -- could help with holiday sales.

See Also:
Apple Flexes Even More Muscle At The iPhone App Store: No Reviews Till You Pay Up
RIM Downgraded On Risky Smartphone Land Grab, Crappy Economy
Bottom Line: Apple's iPhone Still Beats Google's G1 Android GPhone

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36 Comments

dj said:
Told ya......"dig" were are you? maybe AAPL and RIMM should be on the no short list, na just a little lube($7oo brazillion)will fix this wax job.
Ted T. said:
So what happens if Apple posts record FY-2008 Q4 profits -- will those analysts go into a different line of work, or will they just pretend they never said anything?
Ted, that depends how far off Apple's results are from the analysts' predictions. Lowering expectations is different than not having high expectations to begin with.
And furthermore, Apple's stock activity has very little to do with their Q4 profits -- it's all about the next quarter's sales/margin projections.
EPS said:
Well obviously RBC is just annoyed that Canadian company RIMM got hit by a downgrade and had to attack Apple to get revenge.

Apple does need to upgrade the Mac mini so they have a more reasonable player in the sub-$1000 market.
Yes, most analysts throw in enough hedge language that they can always say, "as we've always said..."

But the best analysts will just stand up and say, "We were wrong..."

(And no shame in that: Half of all trades every day are wrong.)
hehateme said:
Henry did people buy ROLLS ROYCES during the great depression?
rocko said:
This seems a bit overdone. The sky isn't falling, it won't fall, and Apple's products will continue to be very popular.

Isn't Apple sitting on an enormous stockpile of cash too? Like $12B or so?
greygoose said:
apple = strong hype, weak fundamentals. wasn't henry screaming about AAPL being on sale around $140?? lol, please.
look said:
@ greygoose "...weak fundamentals" - i can see you did your research...seriously, go back to school boy.
I was screaming at $127--the 33%-off sale. And now it's 40% off!

(And could easily go to 70% off as economy craters. This is not a short-term call.)
dj said:
Sorry guys, but the p.e.'s drop into the teens,this wax job is going to hurt
tom b said:
I think the analysts aren't considering back-to-school spending. You need a laptop; you need a laptop.
anon said:
So Google is finally "correctly valued" but Apple is "on sale", while AAPL continues to plummet more than GOOG. I don't think the market agrees with you, Henry. Your predictions are irrelevant to the current stock trends. Covering your ass with "long term", are we?
Skeptical Ben said:
Apple is in great shape. They don't need bank loans, they have lots of cash and positive cash flow from operations. They've barely begun to book profits from iphones and apps. I'm waiting for the next release of MacPros because the multi-processor chips have greatly increased the throughput at companies in my field (hi res motion graphics). This is one stock I can stay long on, and I bought more today.
dan said:
Its about benefit of the doubt. Always has, always will. Its a mark of expectations-meet-reality and how investors apply it. A pair of examples:

Apple is not supposed to do well. If they are doing well, its a fluke and only a matter of time before they come down. Bring in a little doubt, despite healthy performance, and we gotta pull out. Apple does not have the benefit of the doubt.

Microsoft is supposed to do well. If they are doing well, its only natural, and they will continue doing well. Bring in a little doubt, even reinforced by unhealthy performance and a series of gross errors (see last few years), and we gotta stay in. They'll be back up, its only a matter of time. Microsoft has the benefit of the doubt.
KenC said:
What annoys me about Huberty is she just cut her price target a week ago, to something like $179, and then today, she drops it right off the table. How does a price target change THAT much, in a little over a week? She just adjusted it.
Intosh said:
@EPS: Yeah riiiiiight, it's a Canada vs USA thing. Why don't you creep back into your hole and pray that your God Mr.Jobs can hype the stock back up, iTard.
luke said:
It's not only Apple that is feeling the the market down-turn. It has hardly anything to do with Canada. It is about the average citizen reading headlines like "Largest Post-Trillion Market Fall Ever" and "Banks in Lending Troubles". People taking their money out of banks and hiding it under mattresses seems to be the problem. Keep your money in the banks, the banks will loaning, the market will get better. This includes your liberal Apple stock...
Intosh said:
@luke: The problem is that most Americans don't understand that. All they want to punish the banks. Case in point, the bailout didn't pass. I've been surfing the web for news about the bailout failure and 90% of the comments I read were against the bailout. People don't understand the risk of doing nothing. No bailout = more fragile banking system = fewer loans = less capital = less economic activity = fewer jobs = less consumption => depression.
Svetlana Gladkova (URL) said:
True, offering laptops in the unde $1K segment must be a good idea for Apple but the problem here is that in this segment huge volumes of sales should compensate for the lower price, something Apple will only have to learn. And how achievable are high sales with the existing distribution channels is also an open question.
EricV said:
re:rocko - 12B a stockpile of cash? what the hell are you smoking (and where can I get some)?
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