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Apple Predicts Earnings Drop; Its Shares Fall

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From Times Wire Services

Apple Computer Inc. on Wednesday projected a surprising drop in its third-quarter earnings, sending its shares reeling.

Apple stock tumbled $7.75 to $47.25 in brisk trading on the over-the-counter market. Volume was a huge 16 million shares, and Apple was the most active over-the-counter stock.

The news led analysts to slash their earnings estimates for the Cupertino, Calif.-based company.

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“This is a shock,” said Andrew Neff of Bear, Stearns & Co., who cut his rating on Apple to “hold” from “buy.”

Apple said its profit margins have fallen at a quicker pace than expected, cutting into its bottom line. That occurred despite what the company said was very strong demand for its Macintosh personal computers.

“Changes in prevailing currency exchange rates and shifts in product mix toward high-volume products will result in decreased gross margins,” Apple said in a statement.

Analysts said the dollar’s recent strength had hurt the company’s profit, because it lowers the value of overseas sales made in foreign currencies.

In last year’s third quarter ended June 29, Apple earned $119.8 million, or 96 cents a share.

Apple’s chief financial officer, Joseph Graziano, said that despite the downbeat outlook, the company plans to transform itself into a high-volume seller with strong market share.

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“We are going through a major transformation, and we think we are on track,” he told a Hambrecht & Quist technology conference here.

Apple said it was succeeding in its goal of attracting new users to the Macintosh, the company’s mainstay.

Graziano said cutting prices for personal computers is helping the company reach a whole new segment of customers.

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