Wednesday, January 23, 2008


I'm sorry to everyone out there who may have bought Apple stock after my "Word on the Street" post a few weeks ago. Apple is getting demolished today after coming out with earnings after the bell last night. It is down 15% to $132. Just 3 weeks ago it was a $200 stock.

Why? They did beat the street on earnings. Apple posted a first-quarter profit of $1.58 billion, or $1.76 a share, compared with profit of $1 billion, or $1.14 a share, a year ago. Revenue for the quarter was $9.6 billion, compared to $7.1 billion a year ago. Analysts polled by Thomson Financial were expecting EPS of $1.62 on revenue of $9.46 billion. But it was the company's EPS forecast for the 2nd quarter, which was nearly 14% below Street expectations, that was disappointing.

Of note, computer and iPhone sales were strong. Apple shipped 2.32 million Macintosh computers, up 44 percent in units and 47 percent by revenue from a year-ago. IPhone sales were 2.32 million for the quarter (in line with expectations).

The biggest disappointment for investors was the slowdown in iPod sales. iPod sales grew only 5% in the last quarter compared with 50% in the year-ago quarter. Growth in U.S. sales for the iPod was nearly flat.

Of course iPod sales are slowing. The iPhone is eating into that customer base. The iPhone is an iPod plus more. This is not a surprise to me at all. I think this is an over-reaction. Steve Jobs always like to lowball the upcoming quarter's estimates. The Apple phenomenon is still alive and strong, and Apple is now 3rd in market share for home computers.

On the expert front, the S&P rating agency reiterates a "buy" on Apple stock (price target $199),

and Jim Cramer says owners should hold Apple here and not dump it.

In related news, the market is down AGAIN today, but there is some optimism on the horizon. The financials are up big today, and some of the banks (Wachovia, Wells Fargo, JP Morgan) are up huge (10% right now). Cramer always says that when a market is down, the first sector that has to recover to lead us back up is the sector that went down first, which is, of course, the financials. So, maybe we are putting in a bottom on the market.

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