Apple bruised by bad news from broker

Inauspicious start to Macworld Expo

A leading financial firm is urging investors to sell their shares in Apple, just as the company's premier trade show and rally of the faithful gets under way in the US. Merrill Lynch analyst Michael Hillmeyer said he was "reinstating coverage with a sell opinion." He also rated Apple's stock volatility risk as high. In early trading on Tuesday, Apple hardly missed a beat, down just seven cents to $14.83. The stock recommendation came on the eve of the Macworld Expo in San Francisco, where Apple chief executive Steve Jobs is expected to announce a new portable digital device. But rumours of a new product, which could bolster Apple's bid to position the Mac as hub for connecting digital devices, may not be enough to turn the tide on sagging sales. "Although Apple makes great products, in our view the new product pipeline looks skimpy and we expect continued market share losses," Hillmeyer wrote. "A product differentiation strategy is difficult in a business increasingly commoditising." The financial analyst also warned of other product line problems, which he said wouldn't be easily resolved by the new product Jobs is expected to announce. "Given the weak state of IT demand and our belief that the bulk of Apple's current products like the Power Mac are becoming stale or remain too expensive, we are carrying conservative financial forecasts," he wrote. Hillmeyer also offered grim projections for Apple's fiscal 2003 first quarter, which closed at the end of December. "We believe that Apple's December quarter sales should be $1.45bn, $50m below the Street consensus, with (earnings per share) of (two cents) below consensus," he wrote. For fiscal 2003, "our estimate of 12 cents is roughly 50 cents below consensus." Apple has been struggling to stave off the effects of a weak economy and a product line that cannot match the higher clock speeds and lower prices of Windows PCs. For the fourth quarter of its fiscal 2002, Apple posted an unexpected net loss of $45m, or 13 cents per share, on revenue of $1.44bn. Sources familiar with Apple's product strategy said the company had planned to release new models of existing Mac lines on Tuesday, but instead delayed the announcement at least several weeks. Apple wants to clear out more inventory first, sources said. Hillmeyer projected a run of numbers in the red. "We expect Apple to post operating losses through most of this year," he wrote. Apple isn't the only consumer computer company having troubles. Gateway appointed new division heads on Monday, as part of a larger restructuring programme. Like Apple, Gateway saw slower-than-expected holiday sales. Joe Wilcox writes for News.com