Apple stock tumbles on worries about consumer belt-tightening

Apple's shares plunged almost 18% today, the largest one-day drop in eight years, after two brokerage firms predicted that consumer belt-tightening would hurt sales of the company's Mac computers.

The stock markets were sharply down today on worries about the fallout from the House's rejection of the $700-billion bailout plan, but Cupertino, Calif.-based Apple's shares took a much steeper dive. They fell $22.98 to $105.26, a 52-week low.

RBC Capital Markets analyst Mike Abramsky and Morgan Stanley analyst Kathryn Huberty each cut their ratings on Apple's stock and predicted slowing earnings growth for the current quarter and fiscal year, which end Tuesday. Abramsky said that a recent RBC survey found a drop in the number of consumers intending to buy Macs and that "a worsening consumer spending environment" would hurt Apple. Huberty said the computer industry's brightest spot would be in PCs that cost less than $1,000 -- a market that Apple largely ignores.

The sell-off triggered a debate over how vulnerable Apple is to declining consumer confidence. Historically, even as they cut back on buying cars or other big-ticket items, consumers keep buying electronics through economic downturns, said Nathan Safran, JupiterResearch's digital home analyst.  "People don't view buying a computer or an iPod as a large purchase, and they are passionate about the consumer electronics they bring home," he said.

But other analysts said Apple's fate, and the fate of all consumer electronics companies, depends on how badly people are hurt if the economy contracts in a big way.  "No one is immune," said Shaw Wu of American Technology Research. "What I’m hearing from the distribution chain is that while people didn’t stop buying Macs, iPods and iPhones, they are opting to buy the lower end. At some point, we worry that even that is impacted."

Apple might be better able to weather tough economic times than other consumer electronics companies  such as Sony and even Best Buy, the giant consumer electronics retailer. Trends that have worked in Apple's favor -- the popularity of the Mac with high school and college students, the push into the corporate world and the opening of Apple stores internationally -- will probably continue even in a downturn.

"They can’t continue to grow at the pace they have grown at, but they will continue to gain share," said Andy Hargreaves of Pacific Crest Securities.

As Apple's stock fell today, Michelle Leder at footnoted.org reminded us that two months ago, Apple used the word "depressed" in a regulatory filing to describe the economy. The stock then was trading around $160.

-- Michelle Quinn

Photo: Consumers in an Apple store in New York. Credit: Andrew Harrer / Bloomberg News

Comments

[Svetlana Gladkova]

Unfortunately it looks very much like investors are ready to start selling stock whenever they are told anything bad at all - without any critical analysis or anything. I think it is mostly the general economic climate, not Apple itself, that caused the hysteria and the incredible plunge for Apple today.

[Tom]

I just bought 10 APPL shares. We'll see where this goes, but every downturn can only be followed by an upswing. I think at worse I can break even, and at best pull a few hundred bucks out of it after the holiday season.

[lbug]

Can anyone tell me how to purchase apple stock. It seems like a great time for me to purchase while the price is low. I have neer purchased stick before.

[KenC]

Citing the standard boilerplate language in a SEC filing is silly. The lawyers write that part. The CFO was specifically asked about the economy in their last two conference calls and did not cite any weakness in sales due to economic concerns.