Apple Got $20 Billion Cheaper Today But How Justified Is That?

This morning analysts from both Morgan Stanley and RBC downgraded their recommendations on Apple stock which resulted in tremendous fall of Apple’s stock by almost 18% or $22.98 to reach $105.26 at closing. This made the market valuation of Apple almost $20 billion lower.

Analysts claim that their surveys show that people intend to buy less Macs - both laptops and desktops with 40% of people planning to cut their general spend on electronics in the next 3 months. The only market segment where laptop sales are not supposed to be damaged by the financial crisis and slowing demand is in low-end machines under $1,000 where Apple simply has nothing to offer to consumers.

It is quite logical that Apple is in a bad situation with its mostly high-end laptops. Sure, MacBook Air is appealing to consumers (I myself am the one waiting eagerly for when I have at least some moral right to replace my current almost new Sony Vaio with the Air) but probably less appealing when consumers face a recession. After all, when you don’t have that much to spend, you will probably buy less luxury products (Air, MacBook Pro, iPhone and iPod Touch could be the examples) choosing something less expensive but offering adequate functionality for less money. So while Apple is well known for its ability to generate immense buzz around its new products and stimulating sales with this buzz, when people need to prioritize their expenses they will probably choose practicality over the brand image.

Right now it looks like the only solution for Apple could be introducing some products that could be competitive against cheaper Windows-based laptops - something sold well under $1,000. But this low-end segment usually works by compensating low price with high sales volumes and even if Apple introduces some laptops to be sold in this segment (which will be revolutionary for the brand), it will still need to ensure large sales in the situation where consumers are generally reluctant to buy.

But anyway today’s situation Apple found itself does not look like having a particularly strong foundation to me. The irony is that one of the analysts (Morgan Stanley’s Kathryn Huberty) is told to have quite a questionable record for predicting Apple’s sales and revenue and thus the panic based on words of two analysts now seems to have a questionable basis itself. But in the market where investors resemble a group of hysterical girls selling stock for any reason that seems to be a valid one it is understandable - yet too bad for Apple and other companies that are already affected and will be affected in the coming days.