Profit Reports Boost Apple and Microsoft Stocks : Computers: Investors seem happy with the industry’s performance. But price wars and market saturation could loom.
The computer business is on a summertime roll--at least as far as investors are concerned. Just a day after International Business Machines Corp. shares spurted on better-than-expected earnings, Apple Computer Inc. and Microsoft Corp. stocks got major boosts on good earnings and positive comments from executives.
But Wall Street may be overlooking storm clouds on the horizon in the form of price wars and market saturation.
Apple’s stock jumped $3 to $31 on the Nasdaq after the company reported that its quarterly profit surged to $138.1 million, as much as three times analysts’ predictions.
The company said it shipped more than 200,000 of its Power Macintosh computers in the three months since they were launched. Though the shipments fell short of Apple’s optimistic expectations, analysts said they were a good omen for the product, which uses a new kind of microprocessor and therefore represents a major transition for the company.
Microsoft shares closed up $2.81 to $50.56 after company Chairman Bill Gates assured analysts that Chicago, the company’s upgrade to Windows that is due out early next year, will be a great success.
“Chicago’s a phenomenon,” Gates said. “We are doing everything we can to make sure it’s more of a phenomenon than any new piece of systems software we or anybody else has ever seen.”
The talk was more upbeat than at past analysts’ meetings, where the company has typically tried to throw water on growth expectations. Analysts expect Chicago to boost Microsoft revenue by as much as $1 billion in its first year out, and they were busy with their calculators after the meeting upgrading their earnings forecasts.
In a sign of his confidence in Microsoft’s long-term outlook, Gates said the company will spend $150 million a year on information superhighway-related research that wouldn’t bring immediate returns, as well as $100 million annually on advertising to boost the Microsoft brand name.
“Frankly, awareness of our company is quite low compared to, say, IBM or Apple,” Gates said.
Analysts praised Apple on Friday for tight financial controls resulting in lower-than-expected restructuring costs. Apple lost $188.3 million in the third quarter last year and took a pretax charge of $320.9 million to cover restructuring costs including layoffs, but it didn’t end up using all the money.
Analysts seemed temporarily happy to overlook problems lurking under the surface. Retailers and industry observers have warned that with companies such as Compaq stocking up huge inventories of computers and with overall growth in the market slowing, there could be a price war leading up to the Christmas season.
