A wild news day for tech stocks, with Sony posting its first quarterly loss in 14 years and rumors running rampant that Microsoft will start laying off employees after all.
A week or so ago, Microsoft issued a statement saying that the company would avoid layoffs, and would instead focus on cutting back on contractors and not replacing employees who left the company. So much for that, apparently. But we’ll know for sure by January 22, the date of Microsoft’s next earnings call.
Strangely, some Wall Street types say that layoffs would be lousy for impacted employees, but good business for Microsoft. Paul Kedrosky, who writes the financially-themed Infectious Greed blog, tells Tech Ticker this morning that Microsoft is suffering through the same economy as everyone else. So even though the company has a history of not laying off employees, it should think again. “Wall Street would be as giddy as a school girl” if the rumors about layoffs at Microsoft were true. Technology is maturing, and Microsoft needs to accept it and fight the conventional wisdom that you invest more in research and development in a downturn, Kedrosky says.
Apple is also in the news again. This after Cit analyst Richard Gardner downgraded Apple on Tuesday, citing “a more conservative view of consumer spending”. That’s Wall Street-speak for “consumers are throwing nickels around like manhole covers these days”.
Gardner lowered his share price target to $132 from $153, but a closer review reveals that his stance is hardly a bearish one. He still calls for Apple to garner a profit of $1.42 per share for the dreaded fourth-quarter, even if the company fails to meet its sales estimates. And he still continues to slap a “buy” rating on Apple shares.
That’s why “relative” is such a key word on Wall Street these days, especially in the consumer technology sector. Yes, Apple may not sell as many iPhones as it has in previous quarters. Analysts expect iPhone shipments to fall below 4 million units for Q4, down from 6.9 million sold in the third-quarter of 2009. And true, most Wall Street analysts expect Apple’s earnings to fall by up to 15 cents per share (at about $1.13 per share).
But compared to other technology companies, Apple isn’t doing so bad. Why? For starters, and as I reported last week, Apple was one of the few winners in last month’s disastrous holiday shopping season, thanks to its ubiquitous and highly popular iPod. The Financial Times reports that Apple iPods, traditionally accounting for up to 50% of Apple’s fourth-quarter revenues, enjoyed strong sales figures for December of ‘08. Analysts at the Consumer Electronics Association say that the iPod, going away, was the most “in demand” consumer choice this holiday season.
Amazon also reported that there were six iPods in its top 20 lists of bestseller list for consumer gift ideas in December, including the $230, 8GB iPod that is drawing crowds of budget-conscious buyers who still value quality. Says Michael Gartenberg, vice-president of Mobile Strategy at Jupitermedia. “In a down economy, people can be willing to spend more on a premium product because they don’t want to make the mistake of buying something that doesn’t meet their expectations or provide long-term value”.
Apple's leadership picture has stabilized, too. Two weeks ago, Apple saw its stock rise to $94 per share after CEO Steve Jobs did what many thought he should have done months ago and go public over his alleged health problems. (The company's stock has fallen back to $87 per share this week).
Investors don’t realize it, and maybe Jobs didn’t either, but stability at the helm is a big factor in a company’s stock price. Wall Street doesn’t like surprises so rumors about Jobs’ health may have held Apple’s stock back more than necessary.
Going public was a good move for both Steve Jobs and Apple. Most investors probably wished he’d done so sooner, but that’s just quibbling.
The leader at the helm is healthy, the company has the most popular consumer electronics devices on the marketplace, and has billions in cash to rise out the recession.
Not a bad picture in a tough economic climate. Unlike Microsoft, Apple seems to have a steadier hand on the wheel. But like I said above, Microsoft may be ready to take historic, if unfortunate steps, to change that picture.