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Fool On The Hill

Wednesday, July 21, 1999

FOOL ON THE HILL
An Investment Opinion
by Louis Corrigan

Apple Opens the iBook

Imagine you're a kid stuck in some boring history class. Your best friend is down the hall stuck in some equally boring English class. Only, with your nifty new Apple (Nasdaq: AAPL) iBook notebook computers in hand, you're both having a great time. Your teachers think you're being attentive, note-taking lads, but you guys are actually battling against each other in some hot new multi-player computer game. In totally different rooms. Wirelessly. Now how cool is that?

Well, surely there are more practical uses for Apple's long-awaited iBook, an "iMac to go," introduced with great fanfare today at the New York Macworld Expo by Apple's so-called interim CEO ("iCEO") and co-founder Steve Jobs. Yet this souped-up new consumer notebook is so easily equipped with this awesome new AirPort wireless networking capability developed in association with Lucent (NYSE: LU) that one instantly thinks of how fun it will be to own one.

That's terrific news for Apple shareowners (myself included) because the company's revitalization during the last two years under Jobs owes a lot to the fact that Apple has made computers fun again. The candy-colored iMac desktops were introduced less than a year ago -- the rainbow colors just this past January -- but the company is fast approaching 2 million units sold. As Jobs rightly bragged today, the iMac has become a pervasive part of the culture. That's especially the case among teens, who are growing up with the Internet and associating the iMac with their favorite stars on shows like Dawson's Creek and Felicity.

The semiannual Macworld has become a showcase for the latest and greatest magic from the charismatic Jobs. The rumors fly so furiously before these events that just about every possible new trick has been imaginatively auditioned by the Mac faithful for weeks ahead of time. Yet, even when you pretty much know Jobs'll pull a tangerine-colored jackrabbit out of his hat, it's still an inspiration to see him do it. That's true, even if, like me, you have to watch via a live QuickTime webcast over a shaky dial-up connection that makes Jobs look nearly like E.R.'s Noah Wylie. Wait a minute, that is Noah Wylie! The actor, who played Apple's guru in TNT's goofy movie Pirates of Silicon Valley, led off the spectacle with his best Jobs imitation, talking about Apple's "insanely great new products."

Yet the main theatrics centered on those great products, the iBook and its novel AirPort feature. Jobs even tapped into a website while walking around, then passed the iBook through a hoop. See, no wires! The iBook marks Apple's first notebook for its important consumer/education market since Jobs returned to the helm and rationalized Apple's product line into four simple slots: professional desktop and notebook (the G3 lines) and consumer desktop and notebook (the iMac and now iBook, respectively). When the iBook begins shipping in volume in September, Apple will be running on all cylinders.

Though some analysts were hoping Apple would offer the consumer laptop for around $1,200, the iBook will initially list for $1,599, though my guess is that prices will drop by January. For what you get, that's still a bargain. The iBook runs on a 300 megahertz G3 processor. According to Jobs, that makes it the second fastest notebook on the planet (Apple's pro G3 line is #1) and faster than Wintel notebooks selling for over $3,000. The Wintel contingent might dispute such claims, but there's no doubt the iBook is lightning fast for the price.

The 6.5-pound computer includes a 3.2 gigabyte hard drive, a 12.1" color display that allows for 800 x 600 resolution, a CD-ROM, 32MB of memory, an ATI Rage 3D graphics card with 4MB of SDRAM video memory, a 56K modem, a 10/100 Ethernet connection, a full-sized keyboard, and a six-hour battery.

These new laptops will come in two-toned tangerine/white and blueberry/white color schemes. Instead of the boxy design of most notebooks, the iBook has curved edges, with the back of the display made of rubber for lots of roughing it in backpacks. It also features a built-in retractable handle and nifty power adapter that lets you wind up its cord "like a yo-yo."

Rumors have floated that some production problems caused Apple to miss an internal August launch target that might have allowed Apple a greater opportunity to capitalize on back-to-school buying. Still, the iBook should be a bestseller this Christmas, and the AirPort feature would seem to make it particularly compelling for the education market.

Each iBook comes equipped with two built-in antennas and an internal slot for a wireless networking card that costs an extra $99 and can be easily installed by consumers. Two computers equipped with the wireless AirPort card can, as in the above example, communicate and share files with each other without being connected to any network as long as they are located less than 150 feet apart. The technology uses radio frequencies rather than infrared signals, so there's no need for an unobstructed line of sight between devices.

What will be more typical, though, is to use AirPort-enabled Macs in connection with a $299 AirPort base station to create a wireless local area network. The base station connects to the Internet via a phone line, cable or DSL link. Up to 10 AirPort-enabled Macs within 150 feet of the base station can simultaneously and wirelessly surf different websites or access e-mail through this one base station's connection. In other words, AirPort offers a relatively inexpensive way to create a wireless network perfect for a home or classroom. And the system transmits data at an ultra-swift 11 megabits per second, which Apple claims is 10 times faster than currently popular home networking solutions.

Like last week's Q3 earnings report, today's news was terrific but filled with some question marks: Is the $1,599 suggested retail price low enough? Will the September launch hurt sales? With other PC makers joining up with Internet service providers, does Apple need a stronger Internet access strategy? Such questions probably accounted for the modest $1 3/16 gain to $54 1/16 today. But the stock has already soared nearly 70% since hitting a March low of $32.

Still, Apple continues to gain market share, growing at twice the industry rate, because it's running its operations efficiently while attracting many first-time computer buyers, who seem to care mainly about exploring the Internet and not much about who won the old Windows/Mac war. What's been nearly ignored in the mainstream financial press, though, is that Apple is still a vibrant software company, and one that's increasingly cultivating Internet software.

In his presentation today, Jobs highlighted how the Sherlock II feature of the new Mac OS 9 operating system, which will be available in October, has been transformed from something that allows you to search for items on your hard drive into a kind of Web meta-search engine. For example, Sherlock uses numerous search engines at once to generate a list of "hits" for a topic. It can then group the various links in any number of ways, all through the Mac operating system interface. Sherlock can also be used like a sophisticated "bot" for comparison online shopping.

Hot on the heels of the launch of Apple's new QuickTime 4 multimedia player and its upgraded, open-source QuickTime streaming server software, Jobs today also announced QuickTime TV, an initiative that puts Apple in the business of aggregating streaming audio and video content over the Web. New partners include Disney (NYSE: DIS) -- plus Disney subsidiaries ABC News and ESPN -- RollingStone.com, and Viacom's (NYSE: VIA) VH-1.

Analysts have wondered what Apple planned to do with QuickTime given that it's technologically competitive with Real Network's (Nasdaq: RNWK) industry-leading streaming software, and that Apple, through its partnership with Akamai Technologies, has proven capable of hosting massive Web events, such as the 23 million downloads of the trailer for the new Star Wars prequel. Today, Jobs led off his talk by indicating that QuickTime is a "core technology" for Apple and one that's important strategically.

It remains to be seen whether Jobs can really exploit Apple's rich software heritage either in ways that help expand the market for Mac hardware or in entirely new ways. Still, it's safe to say that while the sleek new hardware and the jazzy marketing have attracted most of the attention, Apple has some interesting software assets that the market is valuing at basically zero. Jobs wasn't shy about reminding us of that today.

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