Analysts don't buy Apple rumors

Rumors are running wild that Apple Computer (AAPL) is on the block, but many analysts don't buy it.

Last week, Oracle CEO Larry Ellison floated a trial balloon that he might gather an investor group to make a play for the troubled computer maker.

This week, Saudi Arabia's Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud disclosed that he has taken a 5 percent stake in the company, going out of his way to note that he is close friends with Ellison.

And today the New York Times reported that Apple is actively seeking a friendly merger partner in former suitor Sun Microsystems, attributing the story to unnamed Apple executives.

Sun representatives could not be reached to comment on the Times story and an Apple spokeswoman declined to comment on what she characterized as speculation.

But some analysts say that if Apple is looking for a buyer, they can't imagine who would take the bait. "That's the problem," said Wendy Abramowitz, an analyst with Argus Research. "I don't suspect that any big-name computer companies would be interested."

Abramowitz added that Apple's current financial situation and its diminished market share make it an unattractive merger candidate, despite its recent $430 million acquisition of Next Software.

Although Sun was at one point very interested in acquiring Apple--and has had a long-term partnership with Next--some analysts think Apple's problems are too big for Sun to take on at this point.

"Sun could be talking to Apple about a number of things and I would be surprised if it was about an outright acquisition. Sun has to consider the effect this would have with its stock and the valuation," said Daniel Kunstler, an analyst with J.P. Morgan Securities.

Abramowitz agreed. "I doubt Sun is looking at Apple as a complete takeover candidate. If they are considering Apple, it may be for a certain portion of the company but not the entire balance sheet."

She offered one alternative explanation for the swirl of speculation. Her theory on the Saudi prince's investment, for example, is that he is more interested in profiting from an increase in Apple stock sparked by merger rumors than in really joining Ellison's investor group.

Apple stock was up nearly 5 percent today, closing at 18-7/8. Earlier this week, Apple shares rose about 15 percent on news of Ellison's takeover musings. The stock had been trading at a 10-year low.

Oracle representatives have declined to comment on Ellison's efforts and said the CEO has also decided to stop talking about it, at least for now.

Apple CEO Gil Amelio has himself discounted the possibility of a takeover. He told the San Francisco Chronicle last week that he didn't see any obvious candidates for a merger and doubted that even Ellison was really interested in making an offer. He also said that Apple attorneys have dusted off its shareholder rights plan just in case.

Shareholder rights plans, otherwise known as poison pills, allow a company to defend itself against hostile bids by issuing new shares to existing holders at lower prices, diluting any stake a bidder might acquire.

Apple's name has been linked with several potential buyers in the past. IBM and Sony have both been previously rumored as potential buyers. Sun was probably the most serious candidate, but acquisition talks fell off last year, reportedly after Sun negotiators realized how serious Apple's financial problems were.

Since then, Apple has declared several more losing quarters, laid off more than 4,000 full- and part-time employees, and seen at least one institutional investor, the Parnassus Fund, cut its losses and sell off its shares in the company.

"The difference between now and then for these companies to make an acquisition is that Apple's deterioration, which may have been there before, is now more visible," Kunstler said. "The [Copland] OS, for example, was believed to be going nowhere and now we know that it's true."

Apple is gearing up to report its second-quarter results on April 16 and has given preliminary indications it won't be pretty. The company said its revenues will be lower than earlier expected due to fewer sales to its channel, which is still trying to move excess inventory.

Kunstler said he expects the company to report a loss, excluding charges, of $1.36 a share for the quarter and $2.95 a share for the year. He estimates revenues for the quarter will come in at around $1.65 billion, on the low end of Apple's preliminary range. He also estimates the company's annual revenues will fall around $7.5 billion compared with last year.

Apple last month instituted a sweeping round of layoffs and is undergoing restructuring to cut $500 million from its operating expenses. The company says it will return to profitability by the end of the fourth quarter.