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Recession or not, Apple will forge ahead

After yesterday's Wall Street carnage, AAPL stood at $89.16, down over 9 percent for the day and 55 percent for the year. It's been an ugly month.

Of course, to a large degree Apple is caught up in the whirlwind of panic selling gripping financial markets the world over. But other information, particularly the downgrade of the stock by two analysts last week, hasn't helped either.

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Both Kathryn Huberty of Morgan Stanley and Mike Abramsky of RBC Capital downgraded Apple last Monday (Sept. 29), which contributed to that day's 17 percent drop in the stock's value. Both analysts pointed to slowing consumer demand as a primary source of concern.

Two weeks ago I wrote on this blog that AAPL was getting hammered unfairly. With its strong growth trends over the past two years and a good earnings report expected Oct. 21, I argued the company was well positioned to prosper in 2009 despite a bumpy economy.

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A lot has happened in the past two weeks.

Consumer trepidation stemming from the cascade of crises on Wall Street has intensified, and retailers fear the worst holiday shopping season in years. While no one knows yet how hard "Main Street" will get hit, you can bet almost everyone will be cutting back on their spending in the months ahead.

Rockville, Md.-based ChangeWave Research added to the gloom with a report that its latest survey of consumer PC purchasing habits showed a significant drop for the Mac. Those who said they planned to buy a Mac laptop in the next 90 days dropped 5 points from August to September (34 to 29 percent), with those planning to buy a Mac desktop falling 4 points (from 30 to 26 percent).

Apple inevitably will feel some pain. Economic troubles overseas also will negatively affect Apple, as the company has worldwide operations. The iPhone faces competition from Research in Motion's forthcoming touchscreen Storm as well as smart phones running Google's Android operating system.

But I still think Apple will weather this recession (I know one hasn't been declared officially yet, but it won't be much longer now) reasonably well. Here's why:

The stash Apple has $21 billion in cash stowed away. While other businesses may struggle due to the frozen credit markets, Apple has little need to borrow money.

Mind share Apple has an extraordinarily powerful brand, particularly in the music space and among young consumers. Piper Jaffray's survey of teen consumers released yesterday showed 84 percent of those with an MP3 player owned an iPod. Of those who purchased music online, 93 percent use the iTunes Store. Of those planning to buy an MP3 player (about a third of the respondents), 79 percent planned on getting an iPod.

Apple also stands to benefit from having products – such as the iPhone 3G and new line of iPods – some people crave so badly even lean times won't prevent them from buying.

Finally, the Mac has established itself as a viable alternative to Windows PCs in the minds of consumers. Though fewer PCs will be sold, more of them will be Macs than if the economy had wilted two years ago.

Commitment to innovation When the U.S. economy was in a funk in 2001, Apple CEO Steve Jobs rejected conventional wisdom: "We're not laying off boatloads of people," he said in July of that year. "We're taking those talented people and saying that if we're going to get out of this, we're going to get out of it by innovating our way out of it."

Three months later Apple introduced the first iPod.

According to the 9to5Mac Web site, Apple on Oct. 14 will debut new MacBooks based on an innovative manufacturing technique that carves the laptops out of blocks of aluminum. It sounds crazy enough to be true. It could be that mystery product Apple CFO Peter Oppenheimer referred to in July's earnings conference call.

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Regardless, Jobs and his lieutenants know innovation is Apple's strength in both good times and bad. Bold new products keep the media -- and hence the public -- focused on Apple.

Unveiling compelling new products while its competitors retrench will give those consumers who are still spending one more reason to choose Apple.

Oct. 9 UPDATE: I just received an e-mail invitation to an Oct. 14 Apple Media Event in Cupertino. The teaser simply says, "The spotlight turns to notebooks."

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