Fund Manager: Apple Can’t Compete With Microsoft

June 24th, 2003 at 3:00 PM - Apple Stock Watch by Bryan Chaffin

Reaction to Appleis PowerMac G5 announcement has begun to take on a more varied tone from the initial acclaim from most quarters. While Mac users and developers alike lauded and applauded the announcement of Appleis newest platform architecture -- initial coverage from mainstream reports was likewise positive -- a darker air of criticism of the company has begun to seep out, as well. While the controversy over Appleis testing methods on proving the G5 is faster than Intelis offerings is being well-covered in other reports, we wanted to bring you some very harsh comments and quotes from a TheStreet.com report:

According to that report, an unnamed source the outlet says is a fund manager, presumably a Wall Street fund manager, said that Apple simply canit compete with Microsoft. From that report:

"Apple clearly has great customer loyalty. But they just canit 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. "Itis 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.

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 article goes on for a total of three pages quoting analysts, such well-known Apple critic Michael Hillmeyer, as saying that Appleis very business model doesnit allow it to compete:

At Merrill Lynch, Michael Hillmeyer has been equally skeptical on the expenses front. "Appleis higher costs force it to charge more for its products than similarly equipped Wintel boxes, thus limiting the companyis 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.

Appleis stock closed at 18.78 on Tuesday, some 31% higher than it traded when Mr. Hillmeyer first issued his Sell rating. See TMOis full coverage of Michael Hillmeyeris comments and thoughts on Apple from April 10th of this year for more information.

The cost themes touched on by Michael Hillmeyer and the unnamed fund manager were also echoed by another fund manager, Vincent Colicchio. From the article:

Advertising remains touch and go. "If I thought the ad market was turning around, Apple could be a play on that," says Vincent Colicchio, co-manager of the All-American Equity fund. "But Adobe cutting its numbers last week tells me thereis not a turnaround."

Against that backdrop, the G5 chip likely wonit 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 donit see the volumes being very exciting, no matter how good the product is," says Colicchio.

"I mean, this is a niche company, and where the niche is weak itis 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."

Absent were comments from Charles Wolf of Needham & Co., who recently raised his rating on Appleis stock from a Hold to a Buy, partially on the strength of the then-coming G5. See TMOis full coverage for more information.

You can find more information in the full article at TheStreet.com Web site. Note that the article is three (short) pages long.