June 6, 2005 1:22 PM PDT

Wall Street uneasy over Apple-Intel deal

Apple Computer's plan to switch from IBM to Intel processors met with a tepid response on Wall Street on Monday, as securities analysts found reason to both applaud and worry about the move.

Topping the list of analysts' concerns is that Apple risks alienating its core base of loyal customers, who expect Apple to differentiate its products from Windows-Intel machines. The deal also could introduce software compatibility problems for Apple because Intel chips will require changes to programs.

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"We believe the move is risky for Apple," Prudential Equity Group analyst Steven Fortuna said in a research note. "By switching to a more mass market processor, Apple likely risks diluting its value proposition as it has less control over the product road map."

Such concerns weighed on Apple's shares early Monday, causing its stock to slip about a half a percentage point on the news.

Yet the deal's long-term opportunity should outweigh the risks, analysts said. Specifically, the move may enable Apple to lower the price of its Macintosh computers and make it more competitive in the desktop and notebook markets, they said.

"Apple might be able to shave +/- $100 from the cost of a system," Keith Bachman, a Banc of America Securities analyst, said in a research note. "A lower price point to the consumer would be a positive for Apple."

The move to Intel chips could help Apple boost the performance and battery life of its laptop computers, Bachman noted. Intel may also provide Apple with a more consistent supply than IBM did and help Apple attract a larger base of software developers, Gene Munster, an analyst at Piper Jaffray, said in a research note.

Intel's shares lost about 17 cents, less than one percentage point, on the news, and IBM shares dropped 63 cents, also less than 1 percent.

The development is a minor loss for IBM that most likely will be offset by recent agreements to supply processors for the Microsoft Xbox, Sony PlayStation and Nintendo game systems, analysts said.

 

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