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Not even Apple (Nasdaq: AAPL) -- purveyor of the mighty iPhone, iPod and Mac trifecta -- will escape the recession unscathed.
That's what Pacific Crest Securities equity analyst Andy Hargreaves said Monday as he slashed his 12-month price target on Apple's stock from US$150 per share to $120 per share.
Hargreaves also reduced his earnings estimate on Apple in light of an economic downturn that has sucked much of the buying power out of the consumer market.
"I think that the macro-economic environment is horrendous, and Apple is not going to avoid it," Hargreaves told MacNewsWorld.
For the September 2009 fiscal year, Hargreaves predicts revenues of $33.3 billion, down from $35.7 billion, with earnings per share of $5.34, down from $5.67.
For the fiscal year 2010, Hargreaves predicts revenues of $35.2 billion and earnings per share of $5.95, down from $39.3 billion and earnings per share of $6.65.
Mac Business Most Vulnerable
"The Mac business is for sure the most susceptible," said Hargreaves, "because the price points are the highest and there is more competition from Windows-powered PCs."
On the other hand, Apple's iPod and iPhone businesses should fare better than the Mac products because they have much more dominant positions in their respective markets, he noted.
"In the iPhone business, they're the price leader and the technology leader," Hargreaves said. "In the smartphone market, there is no true competitor offering what they offer in terms of feature functionality at the price Apple offers it."
Despite cutting his outlook on Apple's revenue and earnings, Hargreaves maintained his "market outperform" rating on the stock.
"[Apple's] earnings are going to be hurt," he said. "The stock trades in line with HP (NYSE: HPQ) and IBM (NYSE: IBM), but I think that Apple's long-term earnings growth potential is better than other large-cap tech stocks."
Is There a Netbook in Apple's Future?
Apple has long prided itself on its ability to bring to market such high-end, high-quality products as the Mac, the iPod and the iPhone.
Yet, the fastest-growing segment of the personal computing market is low-end, Internet-ready netbooks -- a niche Apple management has thus far avoided out of fear that it would cannibalize its Mac line of products.
That may change by the end of this year.
"Steve Jobs has said that Apple doesn't know how to make a $500 computer that's not a piece of junk," said Brian Marshall, an equity analyst at BroadpointAmTech. "Having said that, I do think Apple will come to market with a netbook in 2009."
Over the last few years, Apple has increased its share of the PC market to about 4 percent. The netbook segment is the fastest-growing market within computing, with more than 30 million units expected to ship this year, Marshall told MacNewsWorld.
"One of the keys to Apple's model is to grow its share of smartphones and PCs," he said. "If Apple wants to continue to gain share, it'll have to compete in the fastest-growing segment."
Apple could bring to market a product that is both compelling and profitable.
"If Apple comes to market with a netbook at a $600 price point, they could generate 35 percent to 40 percent gross margins, which is, in fact, higher than Apple's overall blended gross margin of 34 percent to 35 percent," Marshall suggested.
Stock Snapshot
Apple's stock was at $90.32 per share in late-day trading on Tuesday, down 4.5 percent from where it was on Feb. 17.
There is nothing specific to Apple that is causing the stock to go down, according to Pacific Crest's Hargreaves.
"It's the overall volatility of the market,' he said.
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