Analysts are not impressed with Apple’s new Power Mac G5 and overall business model.
“At a developer’s conference, Apple touted upcoming new desktop computers as “the world’s fastest.” The boxes will contain the new PowerPC G5 chip manufactured by IBM, which can process twice as many bits of data at a time compared to existing desktop processors. Apple also previewed the new version of its desktop operating system, ‘Panther,’ which will be available by the end of this year. Yet fund managers seem unmoved by speculation about Apple’s pending product rollouts,” reports K.C. Swanson for TheStreet.com.
“‘Apple clearly has great customer loyalty. But they just can’t compete with Microsoft and Intel,” says one fund manager who asked to remain anonymous, calling Apple ‘a classic example’ of a company on the losing end of long-term competitive pressure. ‘It’s been a value stock for a long time. I think we made the decision a long time back on sticking with winners,’ says the manager,” reports Swanson. “Analyst John Park, who covers the stock for Independence Investments, says buysiders are likely to stay on the sidelines until Apple can show progress on profitability and market share.”
“…the G5 chip likely won’t be enough to force a turnaround. After all, prices for the gussied-up computer that incorporates the silicon — the PowerMac G5 — start at $1999. ‘Given how weak the market is, I don’t see the volumes being very exciting, no matter how good the product is,’ says Vincent Colicchio, co-manager of the All-American Equity Fund. I mean, this is a niche company, and where the niche is weak it’s not going to get a lot of interest from the Street,’ he says of Apple. ‘Not to mention that from the competitive standpoint it has higher costs than Wintel,'” reports Swanson.
Swanson reports, “At Merrill Lynch, Michael Hillmeyer has been equally skeptical on the expenses front. ‘Apple’s higher costs force it to charge more for its products than similarly equipped Wintel boxes, thus limiting the company’s ability to retain market share,’ he said in a research note Monday. Hillmeyer has a sell rating on the shares and Merrill has not done recent banking for Apple.”
“As for Apple’s online music venture, analysts are generally taking a wait-and-see approach, though most assume sales won’t offer much of a lift to a total revenue base of nearly $5.8 billion over the past year… The same fund manager who sees Apple as a marginal player says he’s ‘kind of intrigued’ with the potential of a new market, though it’s not enough to make him purchase shares. But Colicchio, another buysider, says it just shows Apple is ‘grasping for growth. The fact that they’re looking in that direction tells me they’re in search of a business model. Which is fine; they should do that — but it tells me there’s a lot of risk,’ he says,” reports Swanson.
Full article here.