BY DAVID SPEAKMAN
As doors opened Monday to MacWorld attendees eager to be wooed by Apple Computer Inc.’s new products, brokerage firm Merrill Lynch recommended investors dump the stock.
Lackluster year-end sales left current Apple models on store shelves while this week new mobile computers were introduced, prompting Merrill Lynch analyst Michael Hillmeyer to post a sell rating — his company’s most negative opinion.
Apple’s “Switch” ad campaign and its costly 50 new retail stores haven’t delivered a significant sales uptick. Apple today claims about 25 million users worldwide — about 2 percent market share — well below its 10 percent share in 1990.
“We believe that Apple’s December quarter sales should be $1.45 billion — $50 million below the Street consensus,” Hillmeyer stated in a research report. “Although Apple makes great products, it’s fighting an uphill battle in a standardizing market.”
Stock analyst Kimberly Alexy of Prudential Securities, who attended MacWorld in San Francisco this week, views it “as a modest disappointment.”
Apple CEO Steve Jobs in his keynote Tuesday claimed 2003 as “The Year of the Notebook,” unveiling svelte 12- and 17-inch PowerBook laptop computers.
The new laptops are priced at $1,799 and $3,299, respectively, but some analysts, even those impressed with the stylish technology, believe the company needs even more lower-priced computers for mass appeal. Apple’s lowest cost hardware products are its $299 iPod, $799 iMac desktop and $999 iBook portable computer.
“While we agree that notebooks will be a significant driver, we maintain that Apple needs to hit the market with lower-priced products to stimulate buying — particularly in a tough consumer-spending environment,” Alexy says.
Apple’s history is a fight against standardization, but that drives up costs and computer prices. The innovative Cupertino company funds major expenses competitors don’t bear — developing its proprietary operating system, configuring hardware to work with Motorola and IBM’s non-standard PowerPC CPU and high-end industrial designs of visually-striking products that competitors rush to copy. Apple’s vanguard approach, such as including 802.11b wireless local area network technology in its computers five years ahead of competitors, gains a very loyal following but not a mass market.
In contrast, Apple’s competitors rely on Microsoft Windows for their operating system and Intel’s or AMD’s CPUs for their hardware — both industry standards. Going it alone, Apple cannot rely on economies of scale or manufacturing efficiencies to differentiate its product line because the company rarely uses off-the-shelf components.
On Tuesday, the day after Merrill Lynch’s sell recommendation, Apple closed at $14.85, down 5 cents.