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ATPM 8.07
July 2002


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The Candy Apple

by Ellyn Ritterskamp,

Ups and Downs of the Market

I never claimed to understand the stock market. I like to dabble in it, in the sense that I like the idea of owning a small piece of a company that I believe makes a contribution to society.

Apple announced June 18 that its quarterly earnings would be 1.45 billion dollars, rather than the projected 1.6 billion dollars. This brought earnings per share down from around 11 cents to between 8 and 10 cents.

I’m sure everyone will hop on board to correct me, but I just can’t understand why, on any level, this is disappointing news. I still hear them saying that the company will earn 1.45 billion dollars. I own some shares of Apple, so I try to keep up with such forecasts. I like hearing the company say it is earning a profit. Any profit. That means I get a return on my investment.

There are two things that mystify me about the fundamental basis of the market. One is the way a share price goes up and down based on expectations rather than on actual performance. I can sort of see how this reflects demand, although my economics professor a few years ago said that cost is never a function of demand. Demand has its own equation, and cost is a whole separate thing. That’s one of those concepts I understood for about two seconds, and then it was gone. I got it, but can never adequately explain it to anyone else. So I’m willing to let this problem slide, for now. Buyers bid more or less on a stock share, based on what they think it will be worth down the road, and I can sort of understand that. But it still kills me when announcements like this one cause a share price to drop.

The other mystifying fundamental concept I struggle with is the notion that a company is supposed to continue to grow. I’ve never been able to figure out our expectation that a company should always make more money than the previous quarter, or the same quarter a year ago. At some point, haven’t we arrived at a place where we’re making plenty, and we don’t need to try so hard to make more?

Not that this will be an issue for Apple anytime soon, but at what point do we stop trying to run everyone else out of business? Isn’t it good for most businesses to have competition? Not just good for the customer, but for the companies as well? Isn’t that what maybe keeps us honest, or at least makes us try to appear honest?

I realize these are very broad questions about the nature of business in a capitalistic society, and we covered lots of that ground in a column a few months ago. But when is enough really enough? I’m not going to lie awake tonight worrying that Apple won’t reach the original 1.6 billion dollar target. When next quarter rolls around, they’ll still be in business, they’ll still be supplying schools with affordable, useful equipment, and we’ll all still have the option of purchasing a Mac if we want one. I don’t know exactly what Wall Street expects from a company, but all that sounds pretty good to me.


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Reader Comments (4)

James Arnold · July 2, 2002 - 03:51 EST #1
I think that the stock market has never understood Apple. I never understood that it has a built in user base, and so however bad the economic news from the company is, there are still a bunch of people who will buy their computers.

I also think that the market is so scared right now that the slightest thing is blown out of all proportion. Apple is still having a pretty good quarter but not as good as was forecast. The forecast is what institutional investors use to make the big stock buys.
Almux · July 2, 2002 - 12:16 EST #2
PCs owners absolutely don't care about the factory their machine is coming out of. A PC is just coming out of a mass and HP could sink (or Compaq, or any) and they wouldn't care less.

We, as Mac users, are hanging to Apple. Apple can count on quite a lot of consumers who will stick to their particular machines! And Apple is still doing better every year, isn't it?
Ellyn Ritterskamp (ATPM Staff) · July 2, 2002 - 15:49 EST #3
Thanx to readers who have indeed helped me understand a key point in this discussion. Apple said its revenue for the quarter would be $1.45 billion, not its earnings. The company will make money, just not as much as projected, and certainly not as much as I mistakenly said.

I stand behind the rest of my comments, though, because I still think that in this economic climate, 8 cents a share earnings is better than 0 cents a share.
Frank Miller · July 2, 2002 - 17:47 EST #4

You are correct in your thinking, but you do not think like the majority of stock market players. Most of these people are there to make money--either for themselves or for their customers. It makes no matter to them what a company does or produces, as long as it produces more cash. It also makes a big difference that the company make more cash than the other guy, because if Company B can show a bigger profit than Company A, then B's stock can be sold for more money. Selling is important to these guys because they need to take the cash home at the end of the "day." Apple, like all other companies, has two customers: the product buyer and the investment financiers. Both must be satisfied simultaneously to be successful. BTW, I think CFO Fred Anderson is doing a great job.

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