(Source: Business Week)
Take a look around and it's hard not to get depressed by all the negative economic news. Home prices keep sliding. Credit is drying up. Inflation fears are on the rise. And consumer confidence is lower than it's been since the early 1990s.
You would think all of this would eat into the business at Apple (AAPL). The company's computers tend to be pricier than those from Dell (DELL) or Hewlett-Packard (HPQ), while its iPods and iPhones are the sort of discretionary purchases that consumers often cut out during an economic slowdown.
Paul Kedrosky thinks Apple is about to take a hit from the slowing economy. The Kauffman Foundation senior fellow who edits the business and economics blog Infectious Greed recently argued on Yahoo's (YHOO) Tech Ticker that since Apple's products are "aspirational," consumers can do without them and opt instead for cheaper alternatives from others, or bypass electronics purchases altogether. He's expecting Apple to miss its earnings targets for the current quarter and to lower its outlook for the quarter after that.
I think he's way off. So we've agreed to wager $50 on Apple's earnings announcement coming up in mid-October. He is betting that Apple will miss consensus estimates for the current quarter of $1.11 and say that gross margins for the next quarter will be less than 30%. I think Apple will at least meet the consensus and will keep its margin guidance higher than that. If Kedrosky is right on either metric, I'll write a $50 check to the National Resources Defense Council. If I win, he'll send $50 to the Susan G. Komen Breast Cancer Foundation.
Computer Sales Matter Kedrosky's assumption seems reasonable until you start looking at what's really driving Apple. For all the attention the iPhone has been getting, Apple's performance in the quarter ending Sept. 30 will largely be determined by sales of its computers.
And in this back-to-school season, college kids are buying Macs in numbers never seen before. A recent survey by Student Monitor, a New Jersey outfit that tracks the buying habits of college students, found that 13% of all undergrads expect to buy a new notebook this fall. Of those, 43% say they plan to get a MacBook or MacBook Pro, nearly double those who said they expected to get a Dell notebook, and seven times as many as those who plan to buy from HP, says Eric Weil, the firm's managing partner. While students prefer Dell for desktop computers, that's small consolation: Students favor notebooks over desktops by a factor of nearly 5 to 1.
Back-to-school time has always been important for Apple. In 2007 the company sold nearly 2.2 million Macs in its fourth quarter ended Sept. 30, up 34% from the year-earlier period.
