Apple shares fall after SigmaTel cuts outlook

SAN FRANCISCO - Shares of Apple Computer stock fell sharply this morning after SigmaTel, a top maker of memory chips used in digital music players, cut its outlook, citing lower-than-expected sales and price cuts.

Over the last three to four weeks, prices for NAND flash chips -- the type of memory used in electronic products such as Apple's iPod and other music players -- have declined more than 30 per cent and are expected to drop another 40 per cent over the next several months, SigmaTel said.

"Management cited this pricing instability as a major factor in lower customer orders," wrote CIBC analyst Daniel Gelbtuch in a note to clients. The lower orders could translate into lower sales of Apple's iPod Shuffle, which uses flash memory, analysts said.

Shares of Apple were down US$1.09, ($1.57) or 2.9 per cent, to US$36.22 on Nasdaq in late afternoon trade after falling as low as US$36.14. Shares of SigmaTel also declined, falling US14 cents, or 0.8 per cent, to US$17.60 on Nasdaq.

American Depositary Receipts of Singapore-based Creative Technology Ltd also fell, dropping US12 cents, or 1.8 per cent, to US$6.55. Creative's Nomad and Zen digital music players compete against Apple's iPods.

Earlier this week, Creative warned of an operating loss in its current fourth fiscal quarter, saying it may have to write off unsold stock.

Some analysts expect sales of stand-alone digital music players to slow as mobile phone and cellular service providers introduce phones that also work as music players.

"We believe that a slowdown in end-demand for MP3 players in a seasonally soft June quarter, combined with an excess inventory build-up at Creative and Apple, are the primary reasons behind the shortfall" at SigmaTel, wrote Jefferies & Co analyst Adam Benjamin in a note to clients.

Also this week, Apple said all its new high-end iPods will come with color screens, updated its iTunes digital jukebox to download audio content called podcasts and cut prices on some of the iPod players.

The 60-gigabyte iPod now costs US$399, down from US$449; the 1-gigabyte iPod Shuffle now costs US$129, down from US$149; and the U2 special edition iPod was cut to US$329 with a colour screen, down from US$349 and no color screen, the company said.

- REUTERS