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Insanities In The Mac Market "You have to suspend your thinking" Apple is a computer manufacturing company. That's how investors think of Apple, as primarily a PC hardware play. So, when Compaq comes out with earnings at $0.15 a share instead of the expected $0.31 a share, Apple gets clobbered with the rest of the PC dogs. Compaq's failure to meet its mark this quarter illustrates the general weakness of the whole sector, and the Lord knows a weak sector is nowhere to be during the biggest bull market run in the history of capitalism. As we know, Apple (with a Rodney Dangerfieldesque PE of 16) is a value play due to it's extremely undervalued position. In today's market, the smart and not-so-smart money is chasing the large cap stocks with momentum. That's why I don't expect Apple to fly into the 50s on a good earnings report or with the announcement of new products at the WorldWide Developer Conference in May. The action is just too loud in other market sectors to hear Apple's quiet and steady growth. A MacObserver reader emailed me this disconcerting story: Our well-informed reader just happens to be a CPA so it's unlikely that he'll be able to find the whimsy inside himself to suspend his thoughts about market fundamentals for long. I suspect that other less-informed investors won't be so inhibited about this new thoughtless approach to wealth management. Here in Austin, I sometimes hang at a local coffeehouse frequented by young online daytraders and I'm often shocked by their astounding lack of historical perspective. Many new investors/traders seems to take 50 to 100% profits as the norm rather the fantastic aberration that it is. I've always been a bullish sorta guy and have snickered at all the chicken littles that throughout the years have prematurely yelled that the sky is falling. But today I believe that there is reason to fear that many newbies are going to get hurt if we have a rapid correction. Until the market psychology changes, AAPL and other underdogs (see ORCL) aren't going to have any real upward momentum. A market correction is possibly the only event that will light up the Apple rocket. Apple, thank goodness, has none of the problems that plague Compaq and every reason to expect to continue to break records for the rest of the year. I look at any dip in the share price below $35 as an opportunity to accumulate a value/growth company with some of my not-so-hard-earned profits taken from the insanely over-valued Internet titans. If Apple gets slammed Monday due to the Compaq fiasco, there could be a nice short-term play for the traders out there. The big day for Apple comes on Wednesday, April 14, after the market closes. That's when Apple will let us all in on the numbers for the Q2 earnings. Thursday morning there is going to be a lot of activity one way or another based on those numbers. Then, on April 19th, Apple has some new product announcements to make at the National Association of Broadcasters Convention. See http://macweek.zdnet.com/1999/04/04/rfifri.html Maybe Apple is going to announce the new QuickTime 4.0 with its cool new interface and abilities that include live media streaming and MP3 playback! See http://www.appleinsider.com/articles/9904/qt4-totally-revamped.shtml. Might be a good time to short Real Networks (RNWK) which sells for an astronomical $207.5 a share. Real Networks now has a market capitalization of $6.8 billion. That's $1.8 billion more than Apple is worth! There has been a lot of speculation about whether Apple will actually meet its estimated earnings per share price of $0.57. The consensus is that they will and perhaps they'll even do much better than that. On the other hand, top of the line sales (the blue and white G3) have been disappointing some armchair quarterbacks and the PowerBook line is obviously not moving well at all. See the Apple Store for killer price cuts on these beauties. Perhaps, savvy users are holding off on their PowerBook purchases till they see what this new consumer portable is all about. As for the new G3s, maybe the lack of a modem for this incredible machine for half of the quarter wasn't such a great idea. We'll just have to wait till the numbers are in. Apple does have an ace in the hole, however. It's ARM Holdings (ARMHY). Apple's original 13 million dollar stake in this RISC microprocessor patent holding company is now worth over $350 million. Apple sold some ARMHY off in January but still owes a 15% stake in the company. Any time Apple feels like the analysts have set expectations too high they can just sell a few shares of this high flying issue to balance the books. I'm not saying that Apple needs to do this or, that it is a healthy way to meet your numbers. What I am saying is that there is no reason for Apple to ever miss their earnings estimate even in a weak season. The iMac Fad iMac sales continue to be very strong everywhere in every channel. In fact, anecdotal evidence indicates that Apple is having trouble keeping the channels supplied, especially with the top selling colors. A new speed bump release (333-Mhz) of the iMac is due to hit the streets any day now and later it's rumored that the weakest selling color, tangerine, will be replaced with a yummy banana flavored iMac. Woo Hoo! The iMac phenomenon is actually gaining more steam as time goes on. This is exactly opposite of what PC pundits have been predicting since November. The iMac is no fad; it's a lifestyle! The addition of a 333Mhz iMac to the current line-up means that new users will have several different versions of the iMac to choose from with a broad price range. The variety of color, price and speeds combined with the incredible proliferation of iMac third-party accessories makes the iMac it's own little universe of options with no parallel in the PC world. Thus, the iMac is the only "monopoly" in the computer hardware sector and immune to the same type of competitive price wars that plague the rest of the PC boxmakers! Fire!? Unfortunately, there was some sort of fire at the LG Electronics plant in Mexico where many iMacs are produced. Even more unfortunately, Apple has been less than helpful by not stepping forward promptly to clarify the situation before the Internet rumor mill cranked up. This fire happened March 27th yet was only just confirmed by an Apple spokesperson to the media on Friday, April 9th. The belated official word from Apple is that iMac distribution in the US will not be disrupted. That doesn't address the real questions about the status of production at the Mexican iMac facility. http://www.techweb.com/wire/story/TWB19990409S0005 Apple is understandably obsessed with secrecy about their business and technologies but sometimes a forthright open and honest approach is the best way to stem a tide of speculation. Already such pro-Apple sites as http://www.appleinvestors.com/ are predicting a possible 5.6% drop in total revenue for the third quarter due to this fire. Wait till the Apple bashing Aaron Greenbergs of the world get a hold of this story. They'll make Apple cider with it. Of course, Apple can shift production to different plants while the Mexican plant is repaired and run the assembly lines overtime to make up for the drop in capacity. This might make the revenue shortfall much less than 5% but will inevitably cut into the gross margins for the 3rd quarter. The real long-term problem caused by the fire might be painfully under supplied channels for much of the year. Either way an honest assessment and some guidance from Apple would be much appreciated. Your comments are welcomed. |