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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Phillip C. Lee who wrote (9181)	3/7/1998 10:08:00 AM
From: Phillip C. Lee	Read Replies (1) \| Respond to of 213173

Thoughts of Compaq's Impact on Apple ------------------------------------------------------------ Compaq released a warning after the bell sending the stock to $24 from its previous close at $27.625. The estimate of break-even in this quarter causes the consensus expected $0.35 to become a dream. The problem mainly lies on its weak sales on workstations to enterprise market. Unfortunately, Compaq was too confidant on the power of NT as well as PII chips. Starting from next week Microsoft and Intel will launch a plan to convince companies to switch from rival' machines to Wintel platform. This is a battle between NT and Unix, Microsoft vs. Sun/SGI/IBM AIX/6000/HP-UX/DEC Ultra. Dell and Gateway has little impact in that market, but still have certain degree of influence. Apple's been focusing on Education and Publishing and consumer markets, which should barely be impacted by such conflict of NT vs. Unix. Therefore, Apple's outstanding sales on G3's products have been revealed in January's figure. After launching successful snail commercial ads in early February, the sales on G3's are booming so far and should be continue for the rest of Q2, especially after price cuts announced about one week ago. Well, how much margin can Apple substain and how many more units will be sold due to the price cuts? How many more units needed to be sold to make up the price reduced at the same margin? It's rather tough to calculate. The following are rough estimates: The price has been cut about 17% in average for G3's models. It's believed that some of cuts were due to the reduced costs of G3's chips, disk, and memory, let's say 7%. So how many additional units needed to be sold to absorb 10% of price reduction in order to maintain similar level of profits? If the original margin was 24.5% at average price of $2,500 per unit and if we expect to sell 325,000 units as an original projection prior to price cut. We'll need probably to sell additional 132,600 units to maintain the same profits. From the story of resellers' excellent sales (they said they could sell 12-15 units per day after price cut as opposed to selling the same amount in a week before cuts), I think it is possible that Apple will make it. If Apple can maintain the same profits as previously projected, the results will follow Eric's or my Q2 estimate model, which ends up with either twice or triple of consensus estimate of $0.15. If Apple could not maintain the profits as projected, it should be still well above $0.15 per share. So, Apple should hardly be impacted by Intel's and Compaq's disappointing results since Apple has dishinguished products from theirs. Phil