Apple the latest victim of market’s wrath

Riding the Nasdaq rollercoaster continues to require nerves of steel. After days of sliding southward, investors got a glimmer of hope on Thursday, when the tech-heavy index rose 122 points or more than 3 per cent. Then came Apple. The computer maker said Thursday that its earnings would fall short of estimates, and investors bailed out on Friday, erasing half of Apple’s market value and pulling the entire Nasdaq down.

From the $60 (U.S.) level just a week or two ago, Apple plummeted as low as $25.50 on Friday, losing more than 57 per cent of its value – or about $11-billion in market capitalization. By mid-day Friday, Apple had lost all the value that it had built up in the past year or so of climbing the stock charts. At about $26, the shares were back where they were last July, and some analysts warned they could go even lower in the coming weeks.

But should Apple’s underperformance be seen as another question mark involving earnings growth in the tech sector as a whole, or is it something specific to Apple? For the most part, industry watchers seem to feel that the company’s poor results have more to say about Apple itself than about the general health of the technology or personal computer sector – partly because Apple is a proprietary platform and therefore isn’t directly comparable to PC makers such as Dell Computer, Compaq or Hewlett-Packard.

Last year, Apple’s return from the land of the living dead was one of the biggest business stories going: visionary co-founder Steve Jobs had returned to the ailing computer maker and managed to turn things around with the popular iMac and PowerBook products, bringing some of the life back to a company that was always seen as the colourful and plucky young counterpart to the boring hegemony of Microsoft and Intel Corp.

Apple had bottomed out under former CEO Gil Amelio – by 1998 its sales had fallen to less than $6-billion from a peak of more than $11-billion in 1995, and its workforce had also been cut in half to 9,000 from more than 18,000. The stock had plummeted to the $12 level, giving the company a market value of just $2-billion. Then Steve Jobs returned when the company bought his new venture, NeXT Computer, and quickly took control.

Cutting its product line and focusing on hip new products such as the PowerBook and iMac, plus a savvy marketing campaign that recalled the old days, Apple got the kind of rejuvenation it needed. The stock began to climb: from the $20 level at the beginning of 1999, the shares soared to a peak of $75 and analysts throughout the technology industry applauded the Lazarus-like return of the reborn Apple Computer.

Everyone wanted to buy into Apple, including Saudi Arabian billionaire Prince Waleed bin-Talal, who bought shares in 1997 and watched his investment triple in value. The company once again became the cool computer for hip artistic types, and even spurred other computer makers such as Hewlett-Packard to come out with multi-coloured cases for their PCs. After racking up more than $2-billion in losses by the time Mr. Amelio left in 1998, Apple became profitable and its revenues began to expand.

So what has happened to change all that? Simply put, Apple’s past few quarters have raised concerns that the better part of all that growth may be over. Apart from some new colours of iMac, the only major thing the company has come out with in the past little while is a new processor called the G4 Cube, which is suitably funky-looking with its toaster-like shape, but is more expensive than and slower than the newest Pentiums.

Worst of all, the latest figures seem to show that not very many people are interested in buying one – or at least not as many as Apple was hoping would. And while the company is still well in the black, with profits of about 30 cents expected on sales of $1.85-billion or so, that profit is some 30 per cent lower than analysts were expecting it to make, and 40 per cent below what Apple made in the same quarter last year.

In other words, like so many other tech companies, Apple has learned that there’s absolutely no leeway for underperformance in today’s market. Being one of the seminal companies behind the birth of the entire personal computer industry won’t buy you a cup of coffee on Wall Street – and having funky-looking computers with popsicle colours doesn’t turn investors on anymore either. Apple is going to have to come up with something better than that, or its stock will remain under pressure.

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