As Apple Shares Slide, What About Sales?

Some analysts fear slowing demand in a weaker economy, but others think Mac, iPod, and iPhone sales are likely to continue their ascent

by Arik Hesseldahl

Apple Inc. tends to prove unstoppable even when other computer makers falter. In the most recent quarter, shipments of Macs surged 41%. That's nearly three times the 15% global growth rate for PCs in general.

But in the current quarter, as markets slide, banks go belly-up, and consumer confidence plunges, even the Apple (AAPL) growth engine may hit speed bumps, say some analysts who are revisiting their estimates just a month before Apple is due to report quarterly earnings for the period that ends Sept. 30. Concerns, including slumping demand for laptops and a strengthening dollar, helped drive down Apple's shares more than 29%, to 126.84, on Sept. 23 from 179.32 on Aug. 14.

One of the bright spots of Apple's last several quarters has been its MacBook and MacBook Pro lines of notebooks, which in the quarter ended June 28 accounted for more than $2.2 billion, or almost 30% of sales. In a Sept. 22 research note, Samuel Wilson of JMP Securities in San Francisco pointed to potential weakness in notebook sales.

Stealth Survey

Wilson called 20 Apple stores and 10 Best Buy (BBY) stores and concluded that demand might soon weaken for the higher-priced MacBook Pro, which starts at $1,999, vs. the less expensive MacBook, which starts at $1,099. "When asked whether we should consider a MacBook or a MacBook Pro, we were repeatedly told that the Pro is designed for the design community, with a high-end video card and a large screen, and that we would be better off with a MacBook for the cost," he wrote. Employees at Apple stores proved 40% more likely to push the MacBook Pro than their counterparts at Best Buy, he found.

Chip suppliers in Asia report that Apple has been canceling orders for computer memory chips, according to Wilson. "The reasons for the cancellations might be entirely benign but could also indicate that demand isn't meeting forecasts," he says.

Morgan Stanley (MS) analyst Kathryn Huberty sounded a similar note in a report issued on Sept. 22. The investment bank cut its price targets on several tech companies, including Apple, citing a strengthening U.S. dollar, which can reduce the value of overseas sales, and other signs that demand for computers and other info tech hardware is slackening. Morgan Stanley also cut targets on Dell (DELL), Hewlett-Packard (HPQ) and IBM (IBM). The bank expects "less-than-normal seasonal growth for global PC and handset shipments in the second half of 2008 and 2009," Huberty wrote. "We expect companies to guide to worse-than-normal revenue growth for the December quarter."

Huberty trimmed her 2009 revenue estimates for 21 tech hardware companies by 3% and earnings estimates by nearly 6%. "We also see additional earnings-per-share downside if the current state of capital markets further limits the ability to finance share repurchases, invest for growth, and finance customer purchases," Huberty wrote.