Analyst Explains His 'Sell' Rating on Apple

Analyst Bob Renck of RL Renck has rated Apple "Sell" since January, prompting MarketWatchis Herb Greenberg to delve into the reasons why. Mr. Renckis biggest issue is with the fact that the company doesnit break out the operating results of its business segments, but he has other concerns too.

"The decline in operating margin year-over-year last quarter is not a good sign given the fact that Apple benefited from declining NAND flash prices," he told Mr. Greenberg. "Gartner is out in the last day or two with a forecast of a turn in demand and price. In short, in the last two years Apple had the wind at its back. With a headwind leverage can work both ways."

Mr. Renck was also concerned about Appleis ability to complete the switch to Intel-based Macs, despite expectations that the final two products to make the move -- Power Mac and Xserve -- will likely be announced at Augustis WWDC conference. The analyst, however, said that a successful completion to the switch "is now being factored in as a given with little hard evidence."

Finally, he was bothered by other analysts cutting their iPod sales estimates. "It appears that iPod June quarter demand estimates are being revised downward by a large amount with no apparent reason other than lack of demand," Mr. Renck explained. "J.P. Morgan also reduced September quarter demand by about two million units... Just as there was little basis except following the trend for increasing estimates, the trend is down."

While the lack of new iPods could be blamed for that, Mr. Greenberg pointed to Majestic Researchis "consumer interest" market share of Apple, which reflects the clicking activity of 20 million consumers on various comparative shopping search engines. "According to Majestic research chief, Tony Berkman," explained Mr. Greenberg, "this has been a great predictor of Apple sales for the past five quarters. As of mid-June, he says, Appleis "consumer interesti share has fallen to 34% from 41% in April. Meanwhile, share for Creative Technology, Sandisk and I-River has moved higher."

He added: "With the "closed system" nature of iTunes, which makes it hard for current Apple customers to switch to competing products, is Apple on its way to becoming the very monopoly for which it assailed Microsoft?"