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."