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Current DateTime: 10:44:19 26 Nov 2009
LinksList Documentid: 31047929
Expiration DateTime: 11/26/2009 10:45:29 PM

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Current DateTime: 10:44:19 26 Nov 2009
LinksList Documentid: 31047922
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Tech Check

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Mar.04
12:33 PM ET
Wednesday, 4 Mar 2009
The Tale of Apple and Palm. Huh?

Ok, here are facts: A company pre-announces grim, at-death's-door guidance for the current quarter; revenue more than 50 percent below expectations; a cash burn-rate far worse than anyone thought that could force the company into desperate times to raise new capital, at the expense of its already beleaguered shareholders; still no word on a release date or price for its hot new product; and another anticipated release will likely be delayed; and it continues to drown in a murky soup of red ink.

A competing company unveils a new family of products right on time; is coming off its best quarter ever even in the face of the worst holiday shopping season in 40 years; even though some are projecting the worst PC sales performance in decades, this company is seeing increased momentum in Asia, despite how much more expensive its computers tend to be; it sits atop a Mt. Everest of $30 billion in cash.

This morning, one of these companies saw an analyst increase his price target on its shares; the other saw the same analyst reiterate a "sell" rating on its shares.

Quick: which is which?

Well, that first company I described is Palm [PALM  Loading...      ()   ], and RBC Capital Market's wireless analyst Mike Abramsky raised his target from $3.50 to $5 a share.

That second company is Apple [AAPL  Loading...      ()   ] and in he reiterated his "sell" rating on that company's shares.

Huh?

Yeah, didn't make sense to me either so I called Abramsky this morning to get more information. He's a very forthcoming, reasonable guy and rather insightful. He told me his call might seem unusual on its face, but that it all comes down to "a concern about the valuation" of Apple, that the economic slowdown and worries about possible margin pressure and slowing sales haven't quite been baked into shares yet. Shares going from $200 to $80 in a matter of months seems like an indication that Apple hasn't escaped the Wall Street downturn, but I digress.

He adds that both Apple's Mac and iPhone businesses are great businesses, "but face challenges in sustaining prior levels of growth." He asks, "How long will people pay a premium for Apple's superior innovation?" He says "there is a risk that in these difficult times, more folks will choose competitive alternatives that are lower priced and forego the Apple experience."

Says Abramsky, "Apple faces difficult choices: Either stand its ground." since it is "not in their DNA to lower pricing. But if they choose to, there's a risk to margins and earnings growth. If they choose not to do so, they risk losing their momentum."

To borrow a tool from the good folks at macdailynews.com:

My Take: There might be no company better positioned to take advantage of the digital revolution than Apple.

Short term concerns were largely mitigated by that rockin' fourth quarter, and the fact that better than half the Macs sold in its retail stores went to new Mac users, which indicates consumers still believe the Mac premium is still worth it; and of course that massive cash position insulates Apple against dire economic times and allows the company to spend big on R&D, or anything else it might want to buy; and while Apple may face challenges meeting historic growth patterns, the law of large numbers dictates that any big company faces the same thing, so to suggest that isn't baked into shares already rings a little hollow for me. I still think Abramsky makes a reasonable case for his call, it's just that I disagree with his perspective on the fundamentals. And that, my friends, is what makes a market.

As for increasing Palm's target to $5 a share, he says that was merely a function of not updating his price expectations since Palm unveiled the Pre at the Consumer Electronics Show in January. Shares re-inflated in the wake of that announcement and he just hasn't gotten around to updating the target. I'd argue that his $3.50 a share target might have been more accurate than not, especially following yesterday's abysmal warning. Abramsky did revise lower his revenue and earnings per share estimates from $964 million to $740 million, and a loss of $1.31 to a loss of $1.63, respectively.

Again, My Take: I get the revenue and EPS revisions, but that share target should have been left alone, or taken down as well.

It's a tale of two companies today. Just seems to me the themes of those stories are way out of whack on Wall Street.

Questions?  Comments? 

© 2009 CNBC, Inc. All Rights Reserved

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Current DateTime: 01:44:15 26 Nov 2009
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