Gadget Stock Watch: Apple's Selloff, EA's Spore for Mac, More

1. MacBook Air, iTunes video rentals not enough. Shares of Apple (APPL) lost over 5% to $169.04 on Tuesday, in spite of CEO Steve Jobs' highly awaited Macworld keynote speech, in which he unveiled the world's thinnest notebook computer (MacBook Air) and announced a movie rental feature for iTunes, among other things. Analysts see Apple's share price decline as a buying opportunity. Piper Jaffray analyst Gene Munster: "At the end of the day, it's four months of anticipation, followed by a sell-off. And then the Wall Street guys get their hands on it [new products] and things go back up." Separately, Citigroup's Richard Gardner reiterated his "buy" rating for AAPL and $215/share target, saying he expects an EPS beat when AAPL reports on the 22nd.

2. EA to simultaneously release Spore. Electronic Arts (ERTS) said Tuesday it will simultaneously release its much-anticipated game Spore for PCs and Macs later this year. This is noteworthy since game software publishers, including EA, have struggled with the timeliness of releases for Mac. Another matter has been whether Mac user demand and market size justified the costs.

3. Sony Ericsson grabs more market share. A strategy shift to boost sales of lower-cost mobile phones helped Sony Ericsson (SNE) (ERIC) gain more market share, but its sales were flat and profits, although beating estimates, were lower due to higher taxes. Sony Ericsson faces growing competition from Apple (AAPL) and Nokia (NOK) in higher-end media phones, as it tries to preserve margins in its low-end growth effort.

4. FCC ruling on SIRI-XMSR during Q1. FCC Chairman Kevin Martin said he hopes a decision regarding the proposed merger of Sirius Satellite Radio (SIRI) and XM Satellite Radio (XMSR) will be made in Q1, but said it will not be before the Justice Dept.'s antitrust ruling. Separately, Mr. Martin said he is optimistic about the agency's upcoming auction of airwaves for mobile phone service, but acknowledged it is not an ideal time for an auction.

Comments

[Thomas A,Gaughan]

good job, well written.
Thomas A. Gaughan

[Tom B]

"saying he expects an EPS beat when AAPL reports on the 22nd."

As do I. The most important data I took from the keynote: Mac sales way up; 4 M iPhones. On track to exceed the 10 M iPhones sold by the end of '08 goal Jobs set for himself.

[peter02l]

Macworld announcements not enough? I suppose this drop had nothing to to with option expiration?

[Sean Olender]

Apple seems to me ill positioned if there is a severe downturn in consumer spending. Apple makes very well designed products, but usually with little, or no real additional functionality. It's about turning the experience of using a phone, MP3 player, or laptop into feeling like you are a hip 20-something dancing in a subway station.

That "feeling" is a powerful sales tool, but I am willing to be it will not be more powerful than the desire to get a good deal if credit contracts and consumer spending slows. "Consumers" want to show off their buying prowess to strangers with name brand products that cost as much as possible, but when the bankruptcies and foreclosures roll in, a good deal ALWAYS trumps conspicuous consumption.

Beyond a temporary downturn in consumer spending, Apple is very poorly positioned to weather what may become a structural change in the way consumers spend their money and how much they save. If deeper structural changes occur after what has been a gradual 20 year drop in savings rates from 9% to -1% and a massive bubble in credit growth, people may simply view "splurging" differently than they do now.

Nouriel Roubini, Stephen Roach and many other economists focusing on international markets believe there will be no "decoupling" which means when the US consumer's binge is over, the rest of the world is going to have reduced production and consumption as well.

These issues are much larger than Apple, but Apple may indeed be in the wrong place at the wrong time. It is selling "really incredibly nice and expensive" versions of the things you can buy without the brand name (yes, and without the stupendous interface) for 50% or 70% less. When people can't pay their bills, they are less concerned about dance-video-like interfaces.