MacWorld frenzy no remedy for Apple’s pain
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.