Apple shares continue slide after downgrade

By Reuters
Posted March 16 at 1:54 p.m.

Apple Inc. shares slid for a second straight day after a rare broker downgrade stoked worries that the company’s torrid pace of growth will slow.

Shares in the world’s largest technology company were down 4.4 percent to $330.08 in early afternoon trading, a loss in market value of about $10 billion. The shares fell 2.3 percent Tuesday.

JMP Securities’ Alex Gauna downgraded Apple to “market perform” from “market outperform,” citing a sharp slowdown in sales growth at its primary manufacturing partner, Hon Hai Precision Industry, Taiwan’s top electronics firm. Apple is likely Hon Hai’s single largest customer.

Gauna is among five of 54 analysts on Thomson Reuters I/B/E/S with a “sell,” “hold” or “neutral” rating on the stock, a market darling and mainstay of global portfolios.

The shares are up nearly 70 percent since the start of 2010. Apple declined to comment on the decline.

“There’s a risk of complacency. The sell-side has gotten itself into a game of one-upmanship,” Gauna said. Investors “should make sure that they’re comfortable with the situation — especially since there’s just so much uncertainty right now.”

He added, “We know that Japan as a supplier matters.”

Japan is a major source of glass for displays used in smart phones and tablets and is home to around a fifth of the world’s semiconductor production. Japanese factories producing everything from chips to car parts have closed following the earthquake and tsunami last Friday, threatening supplies to manufacturers across the globe.

Also, Apple derives an estimated 6 percent of its sales from Japan.

Wall Street is accustomed to Apple blowing its own sales estimates out of the water. But Gauna warned that major technology companies’ shares have been punished more severely of late for missing estimates.

Nervous analysts have worried for years that the stellar stock prices of technology giants such as Apple could tumble back to earth, especially as competition intensifies for its hottest products, from the iPhone to the iPad. The second generation tablet is expected to have sold 1 million units since its Friday launch.

Some top hedge fund managers cut their stakes in Apple and Google Inc. in the fourth quarter, according to a Thomson Reuters survey of filings of the Smart Money 30, some of the largest stock-picking equity hedge funds.

JMP said sales growth in Hon Hai slowed from 84 percent year-over-year in December to 37 percent in January and 26 percent in February.

The causes for this could include competition for the iPhone from smart phones based on Google’s Android, weakness in computing products as tablet demand grows, and product transition risks around the iPad 2, the brokerage wrote.

Gauna said his cautious stance on Apple was not predicated on any longer-term fundamental concerns with the company’s technology or roadmaps.

“Apple and Hon Hai sales growth was tightly coupled throughout 2010, and given Apple’s scale, we view it as unlikely that a correlation isn’t still in effect as Hon Hai slows,” the brokerage said in its report.

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One comment:

  1. momic March 16 at 3:22 pm

    Got rid of my iPhone. Tired of Apple controlling content I can surf to on the internet. Not buying apps for every little free app on the internet. Android is the wave of the future. Apple iPhone is on the down hill slide. Apple 4G better be on an open platform.