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How far has Apple fallen?

The company has already said that business was off last quarter. The question it will try to answer when it releases earnings is how long the malaise will continue.

Apple
Stock price from October 1999 to present.  
Source: Prophet Finance
Apple Computer has already said that business was off last quarter. The question the company will try to answer Wednesday when it releases earnings is how long the malaise will continue.

Three weeks ago, the Cupertino, Calif.-based computer maker warned that revenue will be lower than expected for its fiscal fourth quarter that ended Sept. 30. The announcement pummeled Apple's stock, which now sells for half of what it did weeks ago.

Analysts expect the company to report earnings of 31 cents per share. Before the warning, the consensus estimate was 46 cents a share.

In its warning, the company also lowered growth estimates for the coming fiscal year but did not specify how far its expectations had dropped or what it planned to counter the situation.

Amid Apple's silence, analysts labeled the problem as multifaceted. The company's flagship iMac is graying in a PC market that is quickly becoming saturated. The high-end PowerMac G4 Cube has received an underwhelming reception amid complaints about its price and apparent blemishes.

Apple has also seen weakness in sales to schools, one of its strongest areas. Last year, Apple lost the top spot in the education market to Dell Computer, according to market researcher Dataquest. Dell captured 23.3 percent of the U.S. education market in 1999, compared with Apple's 19.1 percent. In 1998, Apple had 22.3 percent and Dell had 18.8 percent.

For the near term, Apple has responded to the weaker consumer sales by offering rebates good through the end of the year on both the Cube and PowerBook lines.

Analysts will be looking for longer-term answers on the company's conference call. One industry watcher said he expects Apple to set the bar very low, so that it can easily beat expectations in the coming quarters.

While the company is enduring its share of problems this fall, it's certainly not the worst of times for Apple. The company is still making lots of money in contrast to the mid-1990s, when the Mac maker was losing market share and bleeding red ink.

The fact that Apple's sales are significant enough to be swayed by dips in the PC market is a sign of how far the company has recovered since Steve Jobs returned four years ago.

Before the warning, Apple had forecast 20 percent sales growth for next year, Merrill Lynch analyst Steven Fortuna said, adding that 10 percent to 12 percent growth is probably a more reasonable target. Even that goal is going to be tough for Apple to meet, Fortuna said, considering that he expects average selling prices for Macs to fall.

"They really haven't got product cycle to drive new growth," Fortuna said.

Dataquest analyst Charles Smulders noted that Apple needs to find some way to replicate the magic of the iMac, a product that lured PC users and expanded the overall base of Macintosh users. The Cube won't fill the iMac's shoes, though. It is turning out to be more of a niche product.

"It think they need to work to find an iMac replacement or a (major) update," Smulders said. "The iMac is a relatively old product. In the July update, they added four more colors. That isn't compelling."

One bright spot for Apple could be growth in the Internet appliance market should the company decide to enter it, Fortuna said. In that area, Apple's traditional strengths of style and ease of use could be rewarded, although such products are still in their infancy.

"That market won't likely take any kind of root until late next year," he said.