Apple: Is it really recession proof? Wall Street says no

Apple: Is it really recession proof? Wall Street says no

Summary: Updated below: Morgan Stanley analyst Kathryn Huberty thinks that Apple can't outrun a slowing economy. And she's betting her estimates on it.


Updated below: Morgan Stanley analyst Kathryn Huberty thinks that Apple can't outrun a slowing economy. And she's betting her estimates on it.

In a research note Monday, Huberty downgraded Apple shares from "overweight" to "equal weight" and lowered her price target to $115 from $178 on the theory that the company can't beat a PC unit growth slowdown.

Huberty's theory, which along with an RBC downgrade knocked Apple shares down 17 percent to a 52-week low, goes like this:

PC unit growth is decelerating. Here's how she is cutting her targets for Apple's December quarter.


The big source of growth in the PC market is sub-$1,000 units. Apple doesn't play the sub-$1,000 game. Analysts have been beating this netbook worry drum in recent days. Huberty's money quote:

Our proprietary analysis of US PC shipments by price segment suggests that unit growth is shifting to the low-end of the market (sub $1,000). With 69% market share of US consumer PC sales above $1,500, we don’t believe AAPL can continue to grow 3x the market rate near-term (which is what we believe is reflected in consensus models). Our revised Mac forecast assumes 18% YoY F2009 unit growth, down from 39% in F2008 (and our prior F2009 estimate of 29%). Going forward, we believe Apple’s ability to maintain both its unit growth premium (roughly 3x) and average selling price (ASP)  premium (roughly 1.5x) versus the market is unlikely.


Apple's earnings growth will decelerate from a strong June quarter. Apple is expected to report fiscal third quarter earnings of $1.13 a share next month.

Investors are compressing earnings multiples for growth stocks. You only need a stock chart to figure that out. Here's Apple year to date.


Simply put, Apple isn't immune from what's happening in the broader economy. It all sounds logical, but Huberty acknowledges that Apple's "2-3 year market share story is intact."

Huberty also notes that Apple is likely to deliver a conservative December quarter outlook--a prudent move that's totally in keeping with the company's playbook. The big question is whether Apple's outlook will be more than its usual lowball guidance. We'll soon find out.

Also see: Apple cuts iPhone 3G build plan; Suppliers to take a hit

Update:  Piper Jaffray analyst Gene Munster is defending Apple shares. Munster makes the following points in a research note:

  • Wall Street expects Apple's unit growth to fall already. Munster adds that the current Apple quarter is facing a tough Mac comparison due to the launch of the iMac a year ago.
  • Fear about about weak Apple margins are overblown. Munster says: "The Street is modeling for 32% gross margin in FY09, down from 34% in FY08. We expect margin guidance to be 30-31% for December, in line or above the company's 30% gross margin guidance for FY09."
  • It's highly unlikely that Apple will warn about its September quarter results.

And all of Munster's points are couched in a massive caveat. He writes:

Concern over the US banking meltdown spreading to Europe, along with mass stock liquidations, looms large. We believe fears of a continued global slowdown will impact equity investments in the tech sector. But our thesis leads us to conclude that Apple is better positioned than other tech players to weather the storm.

Topic: Apple

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  • One thing to keep in mind

    The analyst's employer, Morgan Stanley, just
    had to sell 21% of itself to get needed cash. In
    other words, they f--ked up bigtime.

    Other Wall Street "genius" firms include
    bankrupt Lehman and forced sale Merrill Lynch.

    Back in the days of the Dot Com surge, these
    "geniuses" were all telling people that these new
    companies were going to dominate everything.
    90% of the Dot Coms, became Dot Bombs.
    People lost a fortune listening to these Wall St.

    In most cases you can tape the stock results
    pages of the Wall St. Journal or NY Times to the
    wall and throw darts to pick stocks. Your
    results will usually be about as accurate as
    basing your purchases on the "genius" analysts
    at the "genius" Wall St. firms.
    • Finally

      Finally, I hear the reason talking. Under current circumstances, Morgan Stanley wouldn't be a company to which I'd turn to get a qualified opinion. Be it on Apples, Oranges or kinderkarten sandbox supplies.
    • Of course...

      ...the same applies to the brokerages that were pumping the stock up does it not?

      Swings and roundabouts.
      Sleeper Service
      • PR

        A lot of these "analysis" is put out for PR
        only - for the brokers and analysts.
        They always mention prominent
        companies or the most recent "hot"
        company. Then the analysis gets picked
        up by the general press and the
        brokerage gets publicity.

        Note that you will rarely see general
        news coverage of some analyst's
        forecast for Acme Pipe or some other,
        possibly huge, company that does not
        have the public's attention. There are
        far more of these than there are of high
        visibility companies like Apple.
    • And guess who makes money ...

      when people are buying and selling stocks? It does nothing for Morgan Stanly when their clients hold on to stocks.
    • A few futher thoughts.

      Apple is likely to continue to do well on the high end in laptop sales.

      It still isn't in the low end market. In the long run I think that it would be ill advised to play in the low end sector. You can't sell style for a premium there. The margins are thin. Reputations are normally poor at least to the point that the machine is not a "in crowd" status statement.

      Um, if you want to be a major player on the high end stay away from the low end.

      The new ipods and iphones aren't the new thing any more nor are the machines themselves all that different from older modals. If you already own one the sane reason for buying a new one is my old one broke.
      • Laptops...

        [b]Apple is likely to continue to do well on the high end in laptop sales.

        It still isn't in the low end market. [/b]

        Gee.. You can buy a "low end" laptop from Dell for $399. That's a brand new unit, Windows Vista Home Basic, 1 GB RAM and a 160 GB HDD AND it's crapware free...

        Yeah, it's a basic, stripped down unit, but if that's all you need... No, it won't win any beauty pagents, but they're very serviceable laptops.

        I'm guessing Dell sells more Vostro laptops than Apple sells MacBooks and MacBook Pros.
        • perhaps in overall numbers...

          ... but growth percentages still have Apple's laptops
          selling 40% more than last year, and now 10% overall for
          this last month. It really doesn't look like "low end" is the
          direction people are going.
    • That reminds me of a commercial...

      [b]In most cases you can tape the stock results pages of the Wall St. Journal or NY Times to the wall and throw darts to pick stocks. Your results will usually be about as accurate as basing your purchases on the "genius" analysts at the "genius" Wall St. firms. [/b]

      I forget who's ad it was - but it featured a guy who put the paper down on the floor and let his dog do his business on the business section. He'd get his stock picks based on where Fido went... Kinda gross, but funny...
  • RE: Apple: Is it really recession proof?

    Actually companies like Apple will be the hardest hit in the consumer retail industry because they are luxury items. If we were in a true recession, i.e., negative growth rate with rampant unemployment, luxury items will be the first ones out of one's budget.
    • Only "IF" Apple products prove to be Luxury items.

      Now if they prove to be must have then not so much. It
      depends on one's point of view. You see Apple as a luxury
      brand. I see them as a practical choice given the "other"

      Pagan jim
      James Quinn
      • Luxury is always based on what you can afford.

        Of course if you have the money for an Apple computer and you really feel you need an Apple computer then you are correct, it isn't a luxury, at least not how we usually think of luxury's.

        On the other hand, it should be fairly obvious that if getting a new computer is a must, and lets say you just do not have the money for an Apple, or you would be under a financial burden to purchase an Apple, clearly where there are PC's available for $500, an Apple computer suddenly is a luxury, no matter how bad you think you need one.
        • Only if.....

          You can't budget and prioritize yourself and your
          want's/needs. I don't see a problem when deciding to NOT
          purchase a PC and getting an Apple when their prices are not
          all that different. Waiting an extra paycheck or two? A
          month maybe? To me its well worth the wait to buy what I
          consider the better product and better name.

          Pagan jim
          James Quinn
          • Not that clear cut

            The difference between a $1200 iMac and $500 PC is a major concern to a large segment of the population. Many people would much rather have more expensive cars than they eventually end up buying. A Lexus rather than a Toyota, a Cadillac rather than a Chevy. The same applies to Apple products on a smaller scale. And an "extra paycheck or two" implies that people have discretionary income of $400 every time they get paid. I'm single with an above median income (for families) and that isn't true even for me. If it's true for you, wonderful. But not for most and that's what the discussion is about. Yes, many Mac owners will still buy Macs. But the question is how much their market share will [i]grow[/i].

            As much as I dislike Vista (without going into DRM, WGA, SPA, bloat and the overdone GUI), for most people it's adequate with enough (inexpensive) RAM available. And "better", as has been stated elsewhere ad infinitum, is highly subjective. I'm not that impressed with the Mac OS, even as I see advantages to it. But the important thing is that most people I know are used to Windows and the differences throw them. Even as the differences between XP and Vista throw them, admittedly.

            Nearly everyone I know will go for the $400 PC desktop or laptop over the $1000+ Mac version. Especially some very savvy shoppers. There are a lot of reasons for that other than cost, the main probably being the availability of software. And before the subject of Bootcamp is mentioned, let me remind you that most people don't want to have to bother with such things. They don't want to have to buy a copy of Windows to do it and deal with installing it. Adding the cost of an OEM Wiondows license to a PC may boost the cost significantly, but that means nothing to the average consumer if it's part of the system price.

            Cost matters more than ever for most computer buyers, if they even feel that they can afford it.
          • Please Jim......

            to the dicerning user who pays attention to reality, they know that high end PCs are now 800.00 to 1000.00 or so, and you can hardly get a mini for that, bare bones configured. <br><br>
            A solid sweet Vista machine, like mine, is now around 1000.00. It's the equivilent of a MBP w/ 17" screen. High end penryn core 2 duo, dual 7200 rpm drives, 4GB of very fast RAM, 512MB Video RAM (discrete), built in webcam, mic, great DVD, speakers, fingerprint reader, easy pull power cable (works as good or better than a magnet), high resolution screen supporting 19X12. <br><br>
            In other words, a MBP that has been built above the default config and hitting the 3000.00 plus mark. <br><br>
            I priced a 15" MB the other day, from a reseller, and it was 1700.00 for one drive (slow 5400rpm as is the default on most macs), like 114MB or some small weird amount of video RAM, and 2 GB of RAM in matched pair set.
            That is less than half of my machine in all ways, including quality (please don't kid yourself anymore aobut the "quality" of Mactel boxes) at almost twice the cost. I can't imagine anyone being that irresponsible with money esp. in this economy and where MS has now brought out ads that make the I'm a PC/I'm a MAC ads look dull and stupid quite frankly.
            ;) <br><br>
            Hate to see it, but Apple is going to lose all of it's pickup in the next few years, esp. if their hardware keeps breaking or going bad and problems and fixes need attention all of the time.
          • xuniL_z, where do you get your numbers?

            [i]"... to the dicerning user who pays attention to
            reality, they know that high end PCs are now 800.00 to
            1000.00 or so, and you can hardly get a mini for that,
            bare bones configured. "[/i]

            Try again, my friend. a Bare Bones mini is far less than
            the $800 figure you suggest and even the top-end
            Mini is less than the $1000 you cite. It's lies like this
            that confuse the average buyer. It's also lies like this
            that are causing people to actually question similar
            statements and realize that the Apple really is worth
            the money they pay.

            I won't deny that this market may give Psystar a
            boost... but even that may end up to Apple's advantage
            once the Psystar's shortcomings become obvious. Then
            again, maybe not.
          • The bare cost...

   $599 for a Mini however this doesn't include a monitor, a keyboard or a mouse. If you add the minimum options from Apple's store the bare cost is just under $1,200 although only Apple would have the brass neck to charge $599 for a pretty standard 20" monitor.
            Sleeper Service
          • Ok, it's been a while, but i priced a MB just last week.

            A 15" MB (not pro) was at 1700.00 at a reseller Blowout price. It was very modestly configured. One 5400rpm drive, 120GB. 2 GB of RAM, matched pair of 1GB modules. I understand you should try to match pairs, but i like the choice of ONE 2GB module in case I want to bump it to 4GB, which i would immediately to run OS X, it's not Puppy Linux to be sure. In fact, Vista is faster on the same hardware in my experience. There are a number of Mac addicts on zdnet that agree Vista is faster on same config. <br><br>
            1500 for a 13" MB. 2800 for a 17" MBP. And that is still only TWO MB of RAM, no choice for one 2 GB module, now that is just mean...who isn't going to upgrade a MBP 17" to 4GB? My HP is perfectly solid and being a 17" display, 4GB 800Mhz RAM, 2 160GB 7200rpm drives, 512MB of discrete RAM on a high end GPU, 2.5Ghz penryn core 2 duo, tv tuner and Vista Ultimate x64, it's current price is so far below the same config on a MBP (you have to upgrade to get to this config in many areas, and no choice of dual 7200rpm drives thati could find.
            Mac Mini is a very low config. It should be cheap. For the same money you can always get twice the specs on a PC almost consistently across the board.
          • Stop being such a numbskull

            When people have to decide between food, gas to go to work, money for the mortgage and a freaking computer what do you think they'll choose?

            It's not the computer, Mac, Windows or Linux. A new computer is mostly a luxury item for most people. And even if you consider a computer as a necessity people will go for the cheapest one they can get to get the job done!

            It's basic economics. Stop being such a dimwitted fanatic already, jeez!
          • Namecalling again, tiki?

            While your second paragraph may be true, calling
            people names is only more likely to have people doubt
            your statements.

            For some, a computer is how they live and work. If it
            weren't for the computer, keeping up with finances
            becomes much more difficult; so the desktop computer
            has become practically a necessity in today's world.

            I have an advantage; I work from my home and don't
            have to drive every day. In fact, despite the gas prices
            having gone up almost 300% in the last 5 years, my
            cost of driving has gone DOWN almost 50% despite
            buying an SUV. As a result, the quality and reliability of
            my computer is a much larger factor than the price of
            gas. And fortunately for me, I wasn't idiot enough to
            fall for these ARMs that have the housing market in
            such an uproar.

            In other words, you can be Pro-active or Re-active.
            One plans ahead; the other suffers.