Drop in Apple Computer Profit Fuels Technology Stocks’ Selloff
Apple Computer shares lost about 13% of their value Monday after the company reported slightly lower profit for the latest quarter because of its new strategy of promoting its lower-cost Macintosh personal computers.
The announcement from Apple, considered one of the strongest-performing computer makers, triggered a selloff of technology stocks. Apple stock skidded $9.50 per share to close at $62.25 in extremely heavy over-the-counter trading. Compaq Computer fell $1.875 per share to finish at $61.375. International Business Machines declined $1.625 per share to close at $106.875, AST Research lost $2 per share to end at $30.25, and Sun Microsystems dropped $1.50 per share to finish at $33.625.
The general selloff underscores continued investor wariness about the economy and its effect on technology sales, said Bruce Lupatkin, analyst with Hambrecht & Quist in San Francisco.
“High-priced PC products are not selling well now,” Lupatkin said. “Other PC makers should be reporting similar lackluster results.”
Apple’s profit for the second quarter ended March 29 was $131.1 million, down less than 1% from the $131.8 million posted in the year-earlier quarter. Sales for the period were $1.6 billion, up 19% from $1.3 billion a year ago.
Apple Chairman John Sculley expressed satisfaction with the results, repeating that the company is pursuing a new strategy of building market share by emphasizing its new line of lower-cost Macintosh models.
“We have successfully launched Apple on a new course,” Sculley said. “During the last two quarters, we have gained market share.”
However, the lower-cost products also have a lower profit margin than Apple’s traditional product line. Apple said its gross profit margins fell to 48.8% from 54.7% a year ago.
“The profit drop should really be no surprise,” said Stuart Alsop, publisher of a Silicon Valley personal computer newsletter. “Lower prices mean lower profit margins. And that equals lower earnings.”
Richard Shaffer, a technology newsletter publisher in New York, said that despite the dip in profits, Apple’s new strategy is a success because it is attracting new customers who can be expected to “buy up” the product line in coming years. According to Shaffer, about 40% of the buyers of Apple’s new low-cost machines had never owned a Macintosh.
Lupatkin said Wall Street investors and analysts should not have reacted so dramatically to the Apple announcement because the company had given ample warning of the likely fallout from its new product strategy.
“The fault is not with Apple. The fault is with Wall Street,” he said.
Monday was the second straight trading day of bad news from technology companies. On Friday, IBM said it lost $1.73 billion in the first quarter, adding that computer hardware sales--the mainstay of the company’s business--fell more than 17% from the prior year.
