Computer shares hit by surprise warning from Apple

Apple Computer shares plunged 50 per cent yesterday, wiping $9.5bn (£6.4bn) from its market capitalisation, after the PC maker had stunned Wall Street with a fourth quarter profits warning.

Apple Computer shares plunged 50 per cent yesterday, wiping $9.5bn (£6.4bn) from its market capitalisation, after the PC maker had stunned Wall Street with a fourth quarter profits warning.

The downturn is a savage blow for Steve Jobs, Apple's billionaire co-founder and chief executive, who has presided over a renaissance in the company's fortunes since he returned in 1997. Since then, Apple's shares had jumped more than eight-fold and Mr Jobs has re-acquired near mythical status as the founder who revitalised the company after it had seemingly slipped into terminal decline in the mid-Nineties.

Apple's bombshell, released after the US markets closed on Thursday night, is the latest to spark fear about the state of PC demand. Intel, the number one PC chip-maker, undermined sentiment last week when it said third-quarter sales would disappoint because of economic conditions in Europe.

Apple shares suffered their biggest ever one-day fall, crashing $27 ³/ ₈ to $26 ¹/ ₈. More than 80 million shares were dealt - one quarter of the company's issued stock - in the opening three hours of trading.

Although some analysts blamed Apple's problems on tough price competition from Windows-based vendors, shares in these rival companies also fell. Dell Computer eased was down $2-7/16 to $31, even though company chairman Michael Dell said Thursday that he expected global PC sales to rise 17 per cent this year. Compaq, the world's biggest PC manufacturer, was down $3.41 to $27.26.

Apple said the sales slowdown had occurred across all of its geographic markets, with particular weakness in demand in its core education market and for its new eight-inch cube-shaped computer, the Power Mac G4 Cube. As a result, Apple said revenue for the fourth quarter ending today would be around $1.85bn to $1.9bn, while after-tax profit, before investment gains, would be around $110m, or 30 cents to 33 cents per diluted share. In contrast, analysts had forecast that the company's revenue would be about $2.2bn and that after-tax profit would be around $165m, or 45 cents a diluted share.

"We've clearly hit a speed bump," said Mr Jobs. Fred Anderson, Apple's chief financial officer, said the company experienced lower-than-expected sales of its computers in September, particularly to schools and universities. And if that wasn't bad enough, Mr Anderson said there was a "business slowdown in all geographies".

Europe's two major tech indexes,the German Neuer Market and the techMARK 100 both shrugged off Apple's woes and posted slight gains. Both indexes are well below spring highs.

Despite the relative calm in European tech stock trading, several planned floatations were pulled. QPR, a Finnish software house, and the German software company Hexmac Software Systems both yesterday cancelled IPOs due in early October.

A syndicate manager said: "[The market] is more selective and there is some concern about the heavy supply coming out, especially in telecoms, but I don't think we'll see the same situation we had in March [when internet and technology shares crashed]." He added: "Market conditions are not as good as they were in June and July when a lot of transactions got done."

In the US, Apple's warning spooked investors. The Dow Jones Industrial average was down 123.87 points at 10,700.5 in early afternoon trading, while the tech heavy Nasdaq, in which Apple is a component stock, slid around 75 points to 3,703.69.