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Apple Gets Cored


Despite beating earnings, company hit hard after lowering guidance.


Last year after the stock market fell apart a new group of tech names rose out of the dust. More thoroughbreds than Phoenix, these stocks galloped hard and fast and for a long time they were easy money.

Well, a lot has changed this year even for companies that were once immune to the pressures of the stock market because of their unique products. People were supposed to always buy Apple's (AAPL) iPhones and search through Google (GOOG). Now management at Google says this is a challenging environment and last night Apple offered guidance that could only be deemed heartbreaking. The company posted earnings of $1.19 on revenue of $7.46 billion, as the Street was looking for $1.08 and $7.36 billion respectively. The guidance was where disaster struck. According to the company, fourth quarter (September) earnings will be $1.00 on revenue of $7.8 billion -- both well below current consensus. Investors are not only shocked (and saddened) by the fact guidance is so far from average estimates of $1.24 on revenue of $8.3 billion. Moreover, gross margin will slide to 31.4% from 34.2% in the third quarter and will decrease even further to 30% for FY '09.

It's amazing that just as the company reached the lofty projects and made the so-called halo effect come to fruition with 2.5 million Mac sales and even better iPhone sales than expected, there will be no party. Instead, the after market felt more like a wake. Then there's the situation of Steven Jobs' health. When asked during the conference call, company CFO Peter Oppenheimer stated: Jobs' health is a "private matter". What he did this past weekend is a private matter even if he went skydiving. The face, brains and visionary behind a company famous for its face, brains and vision is a lot more than a private matter.

Ralph Kramden once asked: "Can it core an apple?" The answer is yes, this apple is cored, sliced and diced. I would love to see Jobs make a public statement. He's looking human and we understand but unfortunately for investors, Apple's share price is looking all too human, too.

American Express (AXP) was waylaid and seemed to be surprised by it all. While I'm sure things have changed since earlier assessments about the US economy, are we to believe that all of a sudden the company has caught up to what is common knowledge on Main Street? I'm a huge Ken Chenault (CEO of American Express) fan but saying the "US economy and business environment are much weaker than the assumptions" seems a little disingenuous. You think? Here's a run down of some of the highlights from the company's report:

  • Credit card profits came in at $21 million from $580 million.
  • Provisions for losses climbed to $1.5 billion from $640 million.
  • Uncollected debt soared to 5.3% of total loans from 2.9%.
No positions in stocks mentioned.
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