Wednesday: 'Winmac' on the Way? Shorts Reel While Apple Rockets

By John J. Edwards III
Staff Reporter

Now that's news.

PC pioneer Steve Jobs this morning shook Wall Street out of its summer snooze with a bombshell announcement: Microsoft (MSFT) will invest $150 million in nonvoting Apple (AAPL) stock over three years and otherwise help the punch-drunk company.

The announcement came at the MacWorld conference in Boston, which was expected to feature the appointment of Apple co-founder Jobs as the company's chairman. Instead, Jobs joined the revamped Apple board along with Oracle (ORCL) Chairman Larry Ellison, former IBM (IBM) CFO Jerry York and Intuit (INTU) President William Campbell. But the big shocker was the alliance between the Mac shop and the House That Gates Built.

"This is incredible," one giddy trader said as Apple soared 7, or 35.4%, to 26 3/4 -- a height it last saw in October 1996. The stock has been as high as 27 3/4, tying a 52-week intraday high. But someone always gets hurt standing too close to a blast like that, and those someones are Apple shorts.

"It was two camps of people all along in Apple -- people who thought they were good and people who were short them forever," the trader said. "A lot of this has got to be them, plus the retail people who'll jump all over anything like this." Apple certainly has plenty of shorts to feel the sting of its good fortune. Short interest in the Cupertino Calamity was 15.15 million shares as of July 24, up 4.9% from the previous month's 14.44 million. Those millions of shares are caught in a viselike squeeze as Apple bounds higher.

The Apple-Microsoft teaming, which reportedly brought a mixture of cheers and boos from the stunned MacWorld crowd, includes bundling of Microsoft software and utilities with the Mac platform and collaboration on a broad range of technological endeavors. But will it include more -- even a takeover? The head of one Wall Street sales desk was skeptical. "I think if Microsoft buys anything the stock'll go up, so I think Microsoft has a vested interest in keeping Apple alive," he said. "I don't think Microsoft'll take them over, so it's probably not as big a deal as people are thinking."

Lou Mazzucchelli, an analyst at Gerard Klauer Mattison, said Apple could trade down once the initial rush subsides. "I think there is some overreaction to this news," he said. "We still have the day-to-day issues of revenue to worry about."

Regardless of the ultimate fallout, the new alliance (Winmac?) stirred a stock market that looked set to slumber. The major indices all were off yesterday's closing levels at the open, but all rebounded just before 10 a.m. EDT and leapt higher. Around noon, the tech-powered Nasdaq Composite Index was up almost 10 at 1631, the Dow Jones Industrial Average was up 52 at 8239 and the broader S&P 500 was up almost 7 at 959.

Meanwhile, bonds similarly reversed their downward trajectory and rose for the first time in three sessions. The yield on the bellwether 30-year Treasury bond eased to 6.48% ahead of this afternoon's auction of 10-year notes. The bond shift aided financial stocks, which are pounding rapidly uphill.

Staff reporter Justin Lahart contributed to this story.

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