Shares of Apple Computer [AAPL:Nasdaq] have slid approximately 20% in less than a month, due to continued uneasiness regarding PC shares. While the company has previously warned that results will be approximately 10% lower than previously expected, we do not believe that the company is through fleshing out its troubles. We believe further opportunity exists for additional lowering of expectations in the weeks leading up to the June 30, close of the fiscal third quarter.
Apple problems are multi-faceted. There has been recent weakness in its iMac line. With no noticeable pick-up in the US economy, sales have continued to remain behind Apple's targeted growth rates. Apple is also behind its peers in introducing a portable web access device or handheld system. Apple enthusiasts have been waiting for an update from the company, yet Apple has remained tight-lipped regarding new offerings.
Sales of PowerMacs will not carry the quarter either. With no new bells and whistles as added enticements to the line of PowerMacs, in the last few quarters, demand has flattened and sales have stabilized. Also lingering is Apple's plan for its retail shops beyond the end of the year. Apple's initial goal was to have 25 stores in operation for the holiday selling season. The company said it would be able to achieve breakeven profitability by the second quarter of operations. Yet nothing has been said regarding the performance of the stores other than the opening weekend of the first two. With no updates and no indication of Apple's longer-range goals, investors are left wondering if the stores that have launched so far have not panned out as expected. And with the pace of new opening slowing, we believe there may be some hiccups that the company did not anticipate. These problems would translate poorly for Apple and its upcoming fiscal Q3 results.
We believe that a number of variables could negatively weigh on Apple's upcoming results. And against the negative backdrop of the PC sector, Apple may yet come out with another warning regarding quarterly results. Unless the magnitude of the warning is devastating, a mild softening (which we expect) will not cause us to change our Neutral opinion.
Market Timing From the Technical Desk
On May 31, we said: "Resistance at $23.50 in shares of Apple [AAPL: Nasdaq] was hurdled but failed to reach our price target of $28.25. Shares have fallen through many levels of support and are now rebounding after closing outside the lower 14-day 2 standard deviation Bollinger Band. Look for shares to rebound to $22 during the next one to two weeks."
The five-month uptrend in Apple was threatened by the collapse on May 29. Shares look to fall further despite rebounding to a high of $21.50 last week. The bias is leaning toward a slide to $18 in one to two weeks. However, moving above $22 would be a positive sign. It is trading at $20.03
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