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Apple shares drop 17.5 percent

The company's shares experience a sharp dropoff in early morning trading, after Morgan Stanley and RBC Capital Markets downgrade the stock.

Apple's shares fell 17.5 percent in early trading Monday, as two noted brokerage firms scaled back their recommendations to a "hold" from a "buy."

Apple fell as low as $105.77 a share in intraday trading, down substantially from its close of $128.24 on Friday. Apple's shares sold off sharply after Morgan Stanley and RBC Capital Markets downgraded the stock.

Morgan Stanley not only revised its recommendation for the stock, but also lowered its fiscal 2009 earnings estimate to $5.47 a share from $5.91 a share.

In listing its reasons for its revisions, Morgan Stanley said in a research note:

First, PC unit growth is decelerating and the remaining source of growth is increasingly in the sub-$1,000 market where Apple does not play. Second, even in the best of scenarios, Apple's earnings per share growth will decelerate meaningfully from June quarter levels. A combination of tough compares (with the previous years figures) and investments in iPhone growth drive our December quarter earnings per share to a decline of 8 percent year over year, down from +29 percent growth June.

Morgan added that it expects Apple to offer a more conservative guide to Wall Street and investors for the three-month period ending in December.

RBC Capital, meanwhile, downgraded Apple's stock based on "elevated risks" from a slowdown in consumer spending.

According to RBC's research note:

In a worsening consumer spending environment we are downgrading from outperform to sector perform on: 1) reduced visibility growth, margins. 2) elevated risks to valuation.

RBC noted in its report that its September data showed the number of those intending to purchase a Mac laptop within the next 90 days has dropped to 29 percent, compared with 34 percent in August, and those expecting to purchase a Mac desktop fell to 26 percent from 30 percent in the same period.