June 12, 2008, 5:20 PM — Yahoo and Apple announcements overshadowed all other tech events this week for IT investors. Apple's iPhone 2.0 launch raised mobile and consumer market issues, while the breakdown of talks between Yahoo and Microsoft removed the possibility of a truly game-changing event in the Internet realm.
All eyes were on Apple's US$199 iPhone 2.0 launch this week as the announcement, made Monday by CEO Steve Jobs at the Worldwide Developers Conference in San Francisco, stirred concerns -- and hope -- for the overall mobile device and retail tech markets.
Apples' good fortunes since the introduction of the iPod have depended on the success of its hit consumer products, which in turn have a "halo" effect on its Mac line. But attention is also paid to these launches because the devices themselves are seen as harbingers of things to come in the music, broadband video and smartphone markets, and IT investors bet heavily on them.
Right after the launch, the low price on the 8G-byte model and the fact that the company did not release a high end 32G-byte version, stirred fears that Apple would see its profit margin erode. Apple shares sank $4.03 to close Monday at $181.64. But the day after, high-profile analysts issued research reports saying the low price will help increase market size. They also said the already widespread geographical coverage, and an ending to exclusive carrier agreements, are setting the stage for iPhone user growth.
Citigroup and Lehman raised price targets on Apple Tuesday, sparking Apple shares to rebound to $185.64. Citing "potential for significant market share opportunities in the handset and personal computer markets," Merrill Lynch on Wednesday added Apple to its US 1 list, the investment bank's top-ranking investment suggestions for "buy"-rated U.S. companies, and reiterated its $215 price target. The investment firm also raised its forecast of 3G iPhone unit sales, estimating a 12 percent increase in fiscal 2009 to 22 million units, and a 13 percent increase in fiscal 2010 to 34 million units.
But Apple shares slumped again on Wednesday, as tech companies were dragged down with the rest of the market on renewed fears of high energy costs and inflation. The uncertain economy has depressed IT company share prices this year.
Though first quarter financial reports were better than expected, there are enough reports about faltering sales in pockets of IT -- especially in the retail market -- to stoke fears. For example, shares of Texas Instruments fell Tuesday after the company adjusted its second-quarter earnings and revenue estimates, bringing the top range of its forecasts down. Company shares declined 2.1 percent to close at $30.66 Monday.
TI now says second-quarter sales will be between $3.33 billion and $3.46 billion, compared with its prior estimate of $3.24 billion to $3.5 billion. The chip maker said sales of chips for mobile phones are weak in the second quarter and revenue from wireless devices is running behind last year's levels.
In the Internet arena, the big news of the week was the breakdown of the second round of talks between Microsoft and Yahoo.
After Microsoft ended its acquisition bid for all of Yahoo on May 3, the companies said they were negotiating for what observers believed was Yahoo's search-advertising business. That, in fact, turned out to be the case, but Yahoo once again spurned Microsoft. In a statement on Thursday, it said, "With respect to an acquisition of Yahoo!'s search business alone that Microsoft had proposed, Yahoo's Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future."
Meanwhile, Yahoo was said to be near a deal with Google, under which it would outsource some search ad business to the Internet giant. But investors appeared unconvinced, at first blush, that a deal with its archrival -- rather than Microsoft -- would be in Yahoo's best interests. Yahoo shares dropped by $2.63, or 10 percent to close at $23.52 Thursday. Microsoft shares rose by $1.12 to close at $28.24. IT investors might be relieved that Microsoft earnings will not, after all, be diluted by a big acquisition.
