Apple, Garmin Slumps May Point to Larger Problem

A number of recent data points indicate trouble in the European retail sector; consumer-electronics sales this spring remain a major question mark. Interestingly, demand for GPS devices and Apple's (AAPL - commentary - Cramer's Take) iPhone seems to be slumping badly in Europe right now.

The ongoing focus on Wall Street shenanigans has taken the center stage in the past two weeks -- but we have gotten some interesting data about European consumers.

Tumbling Into the Second Quarter

Eurozone retail sales dropped by 0.5% sequentially and 0.2% year-on-year in February -- although the January number was revised upward to 0.2% year-on-year increase. It does look like European retail spending is going to decline in the first quarter.

This could be a harbinger for a spring recession -- and the culprits are not hard to find. The weakening dollar is hammering Germany, which just showed a third consecutive month of decline in manufacturing orders. The European inflation rate hit 15-year high in March, accelerating to 3.5%, ahead of expectations.

The paradoxical twin beast of high inflation and strong currency is not likely to exit in the 2008 second quarter. European inflation kept accelerating right out of the first quarter, and the euro is still at 1.57 against the buck. And that's after a much-vaunted "dollar rebound."

All it takes a one particularly bad U.S. macro item to get us back to the all-time euro high of 1.59. It's hard to see what would dispel the inflation/currency worries that are now depressing European consumers. New liquidity at Lehman Brothers is not gonna cheer up either Hans Jurgen or Jean-Pierre.

The Garmin (GRMN - commentary - Cramer's Take) reiteration of its 40%-50% sequential revenue decline guidance cannot be pinned on Europe alone. North America is a lot bigger market for Personal Navigation Devices (PNDs). But European PND demand does seem to be going through a lot faster sequential decline from the 2007 fourth quarter than anticipated.

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At time of publication, Kuittinen had no positions in the stocks mentioned, although holdings can change at any time.

Tero Kuittinen is managing director and senior analyst for Avian Securities, a brokerage firm specializing in technology companies. Although Kuittinen is an employee of Avian Securities the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Avian Securities, nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.