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Dueling Fools Apple Sauced
Bear Argument

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Dueling Fools

By Paul Larson (TMF Parlay)

I am relishing this opportunity to be able to argue the bearish position against Apple Computer. My wife recently became an Apple customer, and now we have both become raving Apple critics. In our experience, Apple's latest computers are lemons, and the few competitive advantages that I thought Apple had -- product usability and strong customer service -- are nothing but a myth today.

Back in September, my wife ordered a brand-new PowerMac G4 for her home-based business. This thing was optioned to the hilt, with a dual-processor motherboard, a DVD RAM drive, and tons of hard drive space and memory. This computer and the monitor it came with looked just plain sweet with its translucent case and stylish design. To say my wife was excited about her new computer would be an understatement.

But the honeymoon ended there. This computer crashed more than an Indy car with a drunken driver. My wife literally spent half her time during any given workday rebooting her computer. Her computer would freeze more times in a single day than my PC does in a year. Sometimes, it wouldn't boot up at all! Her computer also corrupted several important files that took literally dozens of hours of work to recapture or rebuild. Because her computer was so ridiculously unstable, she was losing files, losing customers, and losing money.

Of course, along the way on this hellish journey, there were literally dozens of calls to customer service and technical support. While a few of the people we spoke with were friendly and tried to be helpful, most of them treated my wife and me like we were clueless toddlers that needed a spanking. This is probably what angered us the most.

I demanded to be able to return the obviously faulty and unusable product. They denied my now-heated request. Only after stopping payment on the credit card and threatening to call a lawyer did they agree to take the lemon back. My wife, a former Mac lover, has sworn off ever buying an Apple again.

Now lest you think that my experience is an isolated one that I've blown out of proportion, my wife has a business associate who purchased almost the exact same machine, and her experience was even worse than ours.

After receiving the new computer and excitedly hooking up the monitor and all the other accessories, she turned on the power switch for the first time. The thing started to literally smoke. Her husband was across the house and came running because he heard the snap, crackle, and pop of an electrical fire.

Again, they called Apple to inquire about a return or an exchange and were, incredibly, denied. Instead, Apple made them take their computer to a local repair shop to await fixing. It ended up just being a faulty power supply, but they had to wait two weeks before getting their computer back. As they say, time is money, and they lost quite a bit of it, just like my wife.

I only know two people who ordered G4s, and both of them were given lemons. It also appears that more than a few other people are also returning their lemons. About a week after sending the computer back, my wife called Apple to see if they had indeed processed the return. Their response was, "We have a ton of returns to process, and we're running several days behind."

While my experiences alone might be enough to make me a bear, there are several other things going on with Apple that are far from positive. After missing its earnings estimates for the third quarter by a wide margin ($0.30 reported versus $0.45 expected), the company also gave a dire outlook for the current quarter. Sales are expected to be roughly $1.6 billion versus $2.3 billion in last year's December period. For a company that just came out with what was hoped to be a hot new product, this contraction is not a good sign.

Moreover, it appears that Apple has lost its lead in the educational market to Dell. Selling to schools was one of Apple's strong niches, and it looks like this niche is now trending toward PCs. Some might blame this recent loss on a change in the structure of Apple's sales force, but I think it might be because Apple's computers have far fewer software titles available and are much more expensive than PCs on a, pardon the expression, apples-to-apples basis.

I admire Steven Jobs' penchant for innovation and even own shares in his other company, Pixar (Nasdaq: PIXR). Nevertheless, Apple appears to have a major problem executing today. When a company destroys customer value like it did with my wife and her friend, it is only a matter of time before shareholder value also gets destroyed. Stay away from Apple today... it is rotten.

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