Apple Pulls iMac as Shares Tumble

Apple's (Nasdaq: AAPL) share price dropped Friday, just a day after the computer maker disclosed that its expected iMac refresh has been delayed until September.

Many industry watchers had predicted that Apple would unveil a redesigned version of the company's consumer-level PC with the G5 processor, now used in its high-end Power Mac G5 and Xserve G5, at Apple's annual Worldwide Developers Conference, which was held last week in San Francisco.

Instead, Apple posted a note on its Apple Store iMac Web page that apologized for any inconvenience to its customers.

By midday trading Friday, Apple's share price had dropped to US$30.87, a drop of $1.43 -- or nearly 5 percent -- from Thursday's closing price of $32.30. In June, Apple's share price had peaked at over $34 a share, following the launch of the company's new AirPort Express plug-in router and anticipation of WWDC, which introduced the newest version of its Unix-based Mac OS X operating system, nicknamed "Tiger."

Apple's Mea Culpa

On the iMac Web page, Apple issued a mea culpa, in which the company acknowledged that it had planned to make its next generation iMac available in the next several weeks, when its inventory of flat-panel iMacs was expected to run out.

"Our planning was obviously less than perfect," the page said.

The note went on to say that Apple is no longer taking orders for the present iMac, which was launched more than two and a half years ago and was considered by many to be outmoded, both in features and style.

Reasons for the Drop

Apple "announced they were going to miss back to school with the new iMacs, Sony (NYSE: SNE) is positioning their new hard drive player as an 'iPod' killer, and even though it likely isn't, the impending arrival of Microsoft's (Nasdaq: MSFT) Janus clearly could be," Enderle told MacNewsWorld.

According to Enderle, investors didn't know until now that Apple's iMac refresh would miss the back-to-school season, and now that they do, they are adjusting to lowered expectations. At the same time, Enderle pointed out that investors overreacted some when they drove Apple's share price past the $34 mark and that Apple's price has moved to a more reasonable position.

Apple's price drop is not unique in the market. Overall, share prices were down Friday on both the NYSE and Nasdaq due to concerns about terrorism over the July 4th holiday weekend, unexpected slowdown in jobs creation and news that the Federal Reserve would raise interest rates for the first time in four years.

Other high-tech companies have experienced similar drops in their stock prices, including storage-media manufacturer Maxtor (NYSE: MXO), which is expecting losses higher than analysts had originally predicted, and chipmaker Intel (Nasdaq: INTC), which has experienced a 2 percent drop in its shares Friday.

Is iMac Delay a Big Deal?

Enderle went on to say that, while Apple might have only 3 percent of the overall PC market, Apple computers are 100 percent of the market that Apple addresses with PCs. According to him, the iMac still represents a good chunk of revenue and profit for the company during the second half of the year, and Apple's earlier valuation reflected this, in part.

"Now that [the iMacs] aren't showing up in time, the market needs to adjust to the new assumptions," Enderle said.

However, Jupiter Research Microsoft analyst Joe Wilcox said that, in his view, Apple's planned September delivery of the updated iMac is not that big a deal , even if Apple were to run out of the existing iMacs.

"July and August are generally two of the slowest PC retail sales months of the year, save for back to school, but eMac is Apple's school model, not iMac," Wilcox said in an interview with MacNewsWorld.

"Looking at the seasonal situation and number of iMacs sold in the most recent quarter's public results, Apple wouldn't likely lose much over the next two months," Wilcox continued. "In fact, the situation might create a better opportunity for selling notebooks, which is an area of increasing Apple emphasis."

Finally, Wilcox pointed out that announcement of a new product "often slows down sales of the retiring computer anyway."