Apple Stock Drops Nearly 50% After Dire Profit Warning

Apple Computer Inc. on Thursday warned of a steep shortfall in fiscal fourth-quarter earnings and sales, sending its stock price tumbling close to 50% and causing more nail biting in an already nervous tech sector.

The computer maker warned that its quarterly earnings would fall as much as 33% short of forecasts because of a sales slowdown that hit all geographical regions, its key education product market and its centerpiece product, the new Power Mac G4 Cube.

Apple shares, which had risen more than $4 to close the regular Nasdaq trading session at $53.50 on Thursday, plummeted to around $29 in after-hours trading following word of the expected shortfall.

The drop obliterated more than $7 billion of the company’s market capitalization.

In a brief statement, Apple Chief Executive Steve Jobs said, “We’ve clearly hit a speed bump.”

Apple said it now expects to report earnings for the quarter ending Saturday of between 30 and 33 cents per diluted share, excluding investment gains. Wall Street had expected earnings of about 45 cents a share.

Sales are expected to be between $1.85 billion and $1.9 billion.

In light of the slowdown, the company said it would reduce growth targets for its next fiscal quarter and year. Apple, which gave no additional detail on the cause of the severe shortfall, said it would provide updated forecasts when it reports earnings Oct. 18.

Shares of other computer makers such as Gateway Inc. and Dell Computer Corp. also slid in after-hours trading.

Apple’s warning comes just one week after Intel Corp., the world’s largest chip maker, warned of lower than expected third quarter revenue, causing a major sell-off of other chip and computer company shares.

Most analysts appeared to be taken by surprise by the Apple statement, and said they had no immediate insight on whether the problems were company-specific or reflected broader economic conditions.

Apple has recently been basking in glowing reviews of its sleek new Power Mac G4 Cube computer, and has increasingly come to be recognized for its fiscal discipline. Several quarters of consistently strong results had finally started to erase the memory of the execution problems it had had years ago.

As recently as last week, many analysts had reiterated their confidence in the company and said they saw strong demand for a slew of new products, from the Cube to the forthcoming Mac OS X, the new and improved operation system designed to be more powerful and user friendly.

In recent months, many Apple watchers had said the company had finally managed to shake a long-standing reputation as a top design company with a lousy business sense.

Shortly before the company revised its forecast, however, there were signs that even Apple’s winning designs could have problems. Word crept out this week that some consumers were unhappy with the Cube.

In comments posted on Apple’s Web site and on other Internet message boards, several consumers complained of discovering cracks in the Cube’s clear silvery casing, which sparked a debate over whether the high-priced new machines were defective.

Although Apple countered that what appeared to be cracks were really just normal “lines” that resulted from pouring plastic into a mold, several customers remained adamant.

“These are really cracks and not mold lines,” one unhappy customer wrote. “They weren’t here when the machine arrived and they are getting bigger.”

Apple could not be reached for comment Thursday about the alleged cracks.