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Merrill Lynch lowers AAPL rating to \"Neutral\"

updated 06:05 pm EDT, Wed September 28, 2005

Merrill Neutral on AAPL

Merrill Lynch has lowered its rating on Apple shares from Buy to Neutral. The financial firm says Apple's execution "has been extraordinary" but questions the "upside in the stock" moving forward. Merrill cites the Intel transition that, while 2-3 quarters away, "could cause customers to pause, offsetting the halo effect." Additionally, revenue growth deceleration is expected in the next 1-3 quarters. "When everyone knows everything is going right for a company, sentiment is hard to improve," writes analyst Richard Farmer. Farmer also cites Microsoft Vista, which "could hold back Mac share gains in 2007." Penetration into the consumer PC installed base by the iPod is expected to reach 35 to 40 percent by 2007, but is "unlikely to be dramatically exceeded."

The complexity of forces affecting Apple's financial situation "creates the possibility of open ended outcomes in both positive and negative directions." This uncertainty exists because Apple competes in two markets, Merrill Lynch says. Apple has a "tiny market share" but "enormous addressable markets," thanks to the iPod. This could lead to growth if the market swings in Apple's favor.

Apple's other market, where the iPod dominates, may be reaching its limit for Apple, according to the firm. Apple is in a "dominant position" in an emerging category, experiencing "hyper growth" that will "eventually decelerate."

The Intel transition could cause Mac buyers to "hesitate" though it might "eventually stimulate software upgrades." The transition to Intel chips is scheduled to begin by June 2006 and be finished by the end of 2007.

"It isn't hard to imagine personal technology pundits writing columns that advise potential Mac buyers to hold off until the Intel machines are ready."

by MacNN Staff




  1. MacnTX

    Joined: Dec 1969



    I hate to break it to you Merrill, but 90+% of consumers have virtually no idea what a processor even is, much less care who makes them. And they certainly don't read the drivel of most technology pundit hacks either. The "Intel transition effect" won't have much if any impact at all on Mac sales.

  1. HouseSold

    Joined: Dec 1969


    Neutral Rating

    Consider the source.....How many times has Apple been "throwing in the towel" or going out of business.

    These guys don't remember the $13 a share, do they?

    And that was well before the stock split.

    Doomsdayers never change their pitch.

    Anything for some press.

    The higher you are on the pinnacle of success, the more visible you become to mud slingers.

  1. lurkerdude

    Joined: Dec 1969



    Get a grip.

    > -- Wow, real doomsaying there.

    There's no point in putting quotes around "throwing in the towel" when they say nothing resembling that. All they are talking about is the stock price for the next few quarters.

    Personally I think the nano will carry the iPod line and Apple for at least a quarter, maybe two, so I don't agree with that. But there's no doubt that a significant number of users are going to delay upgrading until the transition takes effect, and there are plenty of Mac users who never get Rev 1 of any new PowerPC line, let alone during yet another major transition. Finally, the mobile gap is bad right now, that there is not a lot of incentive to get a Powerbook/iBook when there will be much higher performing Intel laptops coming out in a year.

    Assuming that Mac OS X is as fast/faster than Windows on the same CPU (which we will finally find out), then switching to Intel is a good long term move, not necessarily a good short term move, and Merrill Lynch is right about that.

  1. testudo

    Joined: Dec 1969


    Re: Neutral rating

    Right on, dude! How dare a brokerage company put out an analysis of Apple that doesn't include the words "Great stock!" "buy, buy, buy" and "will never level off or go down in price!".

    Of course, if you look at Apple's chart, you'd see that, even this year, there was a 6 month span where Apple's price stagnated or went down. Wouldn't you think, in hindsight, that a neutral rating for those quarters might have been called for?

    And, of course, you would also know, if you look back, that Apple's stock price was stagnate from, say January 2001 through Jan. 2003, Apple's price also stagnated.

    And this guy is talking about the next few quarters. Boy, doesn't anyone hear understand the stock market or the brokerage business?

    Oh, and while 90% of people may not know what processor is in their computer, the author clearly states that "It isnít hard to imagine personal technology pundits writing columns that advise potential Mac buyers to hold off until the Intel machines are ready." I.e., uncle Fred doesn't know that his computer might have an Intel chip or a PPC chip, but he might read in the Washington Post something like "Hey, thinking about a Mac? Maybe you should wait 6 months, as Apple's reworking their entire line-up and the stuff you buy now will be really outdated then". (I didn't say the above was technically 'true', but that doesn't prevent someone writing it, nor Uncle Fred from reading it and believing it. Plus, if you really think your new Mac today won't feel outdated two years from now when all the grand new changes Apple makes to its OS are "Intel" only, or "PCI-Extreme" only, basically making it Intel only. h***, look at the people who complain now how their 1 year old laptop or low-end mac can't do Core Image. You must believe more obsolesence is going to happen starting with the intel releases.

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