Apple Hits a High, but Fails to Convince Big Investors

But it's grown steadily less profitable over the past three years: Its net profit margin ebbed to a mere 0.9% as of the March 2003 quarter, compared to an 11% margin back in June 2000.

It's an unsavory picture on market share, too. According to Gartner, Apple's piece of the worldwide PC market, measured in units, has fallen steadily. In the first quarter of 1998, its share stood at 3%; it declined to 2.3% in 2001 and has subsequently edged down to 2.1% in the most recent quarter.

Niche Markets Showing No Signs of Turnaround

Meanwhile, two of Apple's biggest markets -- education and advertising -- have taken a beating and show no signs of getting off the mat. IDC has predicted the U.S. education market will shrink 16% in the 12 months through September 2003.

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(GBTFX Quote) fund. "But Adobe(ADBE Quote) cutting its numbers last week tells me there's not a turnaround."

Against that backdrop, the G5 chip likely won't 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 don't 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 it's 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."

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