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Apple to be &#039daytrader&#039s paradise&#039 between earnings and MacWorld

Shareholders of Apple Computer Inc. (Nasdaq: AAPL) are going to get whiplash in "a daytrader's paradise" in the trading sessions between the company's third quarter results and next week's MacWorld expo in New York.

Lowered guidance for Apple's September quarter sales knocked shares down 1 5/8 to 54 5/16 in early trading Thursday.

Apple: Buy or bail?

Apple easily beat Wall Street estimates with fiscal third quarter earnings of 69 cents a share on sales of $1.56 billion, slightly below projections because of delayed PowerBooks in the quarter. But analysts are just beginning the debate about Apple's future. Wall Street is adjusting its thinking now that Apple is a growth story not a turnaround tale.

"I'm telling my clients to just stay on the sidelines until after MacWorld," said Louis Mazzucchelli, an analyst with Gerard Klauer Mattison. "It's going to be a daytrader's paradise for the next couple weeks and I don't play that game."

"The earnings were fine, but everyone is trying to find nits," he said. "I'm not nit-picky."

Mazzucchelli said he expects profit taking to hit Apple shares up to MacWorld, where the company is expected to announce new products. After the expo, Mazzucchelli also expects profit taking. Once the air is let out of Apple shares, Mazzucchelli said it will be time "to jump on this thing for the December quarter."

Sales in the third quarter were a bit below expectations and Fred Anderson, Apple's financial chief, lowered sales expectations for the September quarter because of product transitions. Revenue and unit shipments will both be "up slightly" in the next quarter, he said. That guidance was below previous guidance. Anderson was comfortable with estimates of 76 cents a share for its fourth quarter.

Anderson said Apple is expecting its December quarter sales to be strong sequentially and year over year. Anderson said all four of Apple's products would be shipping in volume in the December quarter. Apple currently has three product lines, but as is custom, Anderson "won't comment on unannounced products."

Bullish analysts noted that Apple has never talked up unannounced products and was holding out for a big MacWorld splash. BancBoston Robertson Stephens analyst Alex Mou reiterated his "buy" rating from last week and said he sees more upside to Apple. Mou has a price target of $75 on Apple.

But not everyone agrees when it comes to Apple.

CIBC Oppenheimer analyst James Poyner cut Apple to an "underperform" from a "hold," on the September sales forecast.

"We are downgrading Apple due to disappointing guidance for the September fourth quarter in terms of revenue and unit growth as well our long-held expectation that revenue and earnings comparisons in fiscal 2000 would be much more difficult," said Poyner in a research report. "We believe the stock, on little earnings growth next year in part because of a much higher tax rate and lower pricing, is worth somewhere between $40-$45, assuming demand does not soften."

Poyner also noted that Apple will face increasing price pressure with the iMac's $1,199 price in "a consumer environment of "free" PCs bundled with Internet service and commonplace systems under $1,000 that offer similar performance."

"The bottom line: Apple's growth trajectory is slowing down," wrote Poyner.

On an analyst conference call, Anderson played down those fears noting that the company moved 487,000 iMacs in the quarter out of a total of 905,000 units. And iMac prices haven't moved from the $1,199 price point. Anderson added that iMac prices won't budge as long as demand remains high, but alluded to an Internet service plan within six months.

Mazzucchelli left the conference call with an entirely different take than Poyner. Mazzucchelli said Apple's strong profit margin of 27.3 percent indicated that the company wasn't being hurt by pricing pressure.

So the debate continues -- a "daytrader's paradise" indeed.