Red Herring: Apple still ‘sweet’

Red Herring isn’t always keen on Apple, but today’s “Investor News” of “the business of technology” site says Apple’s core is still sweet.

The article says that Apple’s short-term picture is “not pretty,” but believes that Apple’s woes will prove to be temporary and “that the recent slump in the stock price has created a good buying opportunity for those long-term investors looking for value among PC makers.”

Red Herring says Apple is trading at an “extremely attractive” valuation and solid financials, and has a “great pipeline” of products and solid management. Some of those products are expected to be unveiled next week at the Macworld Expo in San Francisco.

Red Herring also thinks that Mac OS X will help Apple a lot by attracting companies such as Alias/Wavefront (which is bringing its 3D application Maya to OS X) and developers in the corporate-oriented side of the open-source community, “which could help Apple gain some market share in the server market.”

On the consumer side, the company should benefit from the ongoing trend to use the Internet as a platform to develop applications, opines Red Herring. Some analysts think that, at some point in the future, most consumer software will be written to the Internet, and not to a particular operating system.

“At that point, it becomes all about strong marketing, strong branding, and product design, and Apple is very solid in all those areas,” Jason Wells, an analyst at Wit Soundview, told Red Herring.

The Investor News story says that Apple is also expanding its international presence, with plans to open a new manufacturing plant in Brazil. Having a Brazilian assembly factory will allow Apple to benefit from the Mercosur free trade agreement and expand its presence in member countries Argentina, Uruguay, and Paraguay, the story said. Apple, however, has denied plans for such a plant.

“Moreover, we trust management. CEO Steve Jobs, as mercurial and somewhat unpredictable as he may be, has shown that he’s got what it takes when it comes to resuscitating an ailing business,” said Red Herring. “Despite the recent steep drop in Apple’s stock, it is still trading 50 percent higher than when Mr. Jobs returned to the firm in 1997.”

The article admits that there are risks. David Bailey, an analyst with Gerard Klauer Mattison, told Red Herring that slack demand makes Apple’s current channel build-up more difficult to reduce. Kevin McCarthy, an analyst at Credit Suisse First Boston, said that the recent price cuts “may set a precedent for new product pricing, possibly wounding Apple’s historical ability to debut new products at premium margins.” And the so-called Megahertz gap between the G4 chips used by Apple and the Pentium 4 chips — which are being sold at speeds of up to 1.5 GHz is also seen as a caveat.

“People have written about the demise of Apple many times in the last decade,” said Red Herring. “But every time Wall Street counted Apple out, the company wound up wowing consumers with new products, and the stock has bounced back. We see no reason for that pattern to change.”