Online News Site Sends Apple Stock Spiraling

Apple Computer's stock slid over 4 percent Friday amid downbeat shipping forecasts, after rumors that the company is sitting on a surplus inventory of iPods appeared on AppleInsider.com, a Web site devoted to the company's products. The post on AppleInsider--which is already involved in an ongoing legal battle with Apple--contributed to Apple's swift decline, analysts said.

The online site wrote that unidentified sources said that shipments of most iPod models are "flat or declining" for the first time since the device was launched in 2001. The report also said Apple was overstocked in some models of personal computers and other products.

"Apple is believed to be sitting on its most significant inventory of iPod Shuffles since the player hit the market in February," stated the Web site. "According to reliable sources of information, tens of thousands of iPod Shuffles remain idle in the channels this week alongside a good number of iPod Photos."

The post came at a time when AppleInsider and Apple are already in litigation in a case that tests whether bloggers have the same protection as traditional journalists in California. That state has a law protecting journalists from being forced to reveal the identities of confidential sources, but it's not yet clear whether that law applies to bloggers.

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Last week's move raised the possibility that Apple will again seek to learn the identity of the leakers--as it is currently doing in another case that dates back to late last year, when Apple filed a lawsuit in Santa Clara County against unnamed individuals who allegedly leaked information about new Apple products to several online news sites, including AppleInsider. The stories at issue concerned a FireWire audio interface for GarageBand, code-named "Asteroid."

Apple is seeking information regarding the identities of the sites' sources, while the Electronic Frontier Foundation--representing the online journalists to protect their anonymous sources--is opposing Apple's discovery, arguing that bloggers should be considered journalists under California law. Kurt Opsahl, staff attorney for the EFF, predicted that Apple would hold off on trying to find out the identity of the leakers of last week's post, until the California courts had sorted out the earlier case. "I'd imagine that at the appeals stage of litigation, Apple would want to figure out what the court decides in this case before issuing another subpoena," said Opsahl.

Apple did not return requests for comment.

AppleInsider was not Apple's only naysayer last week. In a widely distributed research report, Goldman Sachs analyst David Bailey said checks of Apple's supply chain indicate that the company's iPod sales will come in flat in its fiscal third quarter compared with its second quarter.

"We expect sequential iPod growth to come in lower than what investors have become accustomed to, suggesting that the upside--which we still expect--should be less than it has been," said Bailey, whose firm has done investment banking for Apple in the last year.

Apple's stock price recovered last year with swelling sales of its iPod music players. Many analysts and investors have been counting on the iPod's eminence to reignite sales of Apple's computers, which provide the majority of its revenue.

In Apple's most recent quarter, it sold 5.31 million iPods, accounting for 31 percent of the company's revenue.

Separately, Apple confirmed late Thursday that it agreed to settle a suit concerning the advertised battery life of its iPod products, according to published reports. The settlement, in which Apple will provide a $50 voucher to certain iPod owners, could cost Apple $100 million to $150 million, according to analyst reports.

All of this comes just days before Apple's Worldwide Developer Conference, which is scheduled to tip off today in San Francisco. Analysts speculate that Apple Chief Executive Steve Jobs will use his opening keynote Monday to reignite sales with the announcement of a new 2-gigabyte iPod shuffle.

The original shuffle stores songs on a 256-megabyte flash memory chip--a feature that makes it less expensive than Apple's bulkier brothers. It's unclear how expensive a larger-capacity shuffle will be.

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