Dueling Fools Apple Core of Ailing PC Sector
Bear Rebuttal

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Dueling Fools
By Paul Larson (TMF Parlay)
September 5, 2001

I will agree with Rick that all of Apple's cash does provide something of a floor underneath the stock today. However, perhaps if Apple had been a little more aggressive in either pricing its machines or spending on research and development, the company's diminutive and shrinking share of the PC market would not have the Mac platform as a mere afterthought in most software developers' minds. Apple's balance sheet is fine at the moment, but the positioning of its business stinks.

Rick then concedes that Apple isn't all about being a box maker, and he's right! But this certainly is not by choice. The company's hardware business has been in retreat mode for years. Consequently, so is the company's software business. I've got to wonder how much longer the Apple platform can go before it loses critical mass altogether.

For better or worse, the market forces have us moving to a singular "Wintel" world, and I see no event on the horizon that will change Apple's feeble competitive positioning against its Windows-based competitors. That is, without the company raiding its beloved piggy bank.

Rick was on the ball was when he called fiscal 2001 a mess. Yes, I would call sliding sales, massive write-offs, and more red ink than you can shake a pen at a mess. However, I see little in Apple's future that makes me believe a rebound will materialize anytime soon.

Is OS 10.1 the answer to Apple's slide, as Rick suggested? This time last year, OS X was right around the corner, and the new operating system was supposed to be Apple's salvation. Ha! Just look at what the revenue trends have done since OS X was released (down 36%) to see that OS X certainly was not the sales catalyst it was supposed to be. Will a forgettable update to the Mac OS really get consumers to open their wallets for a new Apple computer? Please.

I will agree that Apple is an innovative company, but so was Xerox (NYSE: XRX) before the wheels fell off. Apple is no more relevant in the computer industry than it was several years ago, and a few smallish niche products (aka, QuickTime and WebObjects) aren't going to save the company.

Don't be suckered into investing in Apple because the valuation appears "cheap." There's a reason Apple is trading at little more than its cash on hand, and that's because the company's business has an exceptionally poor prognosis. To get out of the rut, Apple will be forced to crack its piggy bank. Even then, the viability of the company's core hardware business is questionable.

For those who want to burn me in effigy because I've taken the holy Apple's name in vain, please don't flame mail me. You won't change my opinion. If you truly think that Apple's business is not rotten, vote with your hard-earned money and buy the shares! I'm not stopping you, but don't say you haven't been warned.

Paul Larson rarely has an apple a day, but he's managed to (mostly) keep the doctors away. Paul owns shares in Microsoft, and you can see the rest of his holdings online. The Motley Fool has a progressive disclosure policy.

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