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July 20, 2000

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Apple

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Subject:  This is THE Quarter
Author:  GFPE

This is the quarter where the transition from comeback story to major market force really registers. The products announced make for a line-up that surprises everyone from skeptics to rumor-engorged Mac fanatics. This is not a symbolic reaffirmation that AAPL is on the ball. It's not to assuage the doubters who had become more and more strident lately. This is not just a new neato insanely great product announcement. This is brilliant business strategy, conservative and bold in different ways at the same time. The present line-up means sales - big sales - for the next couple of quarters. Today's announcements are a very big deal.

Of course, we're going to be hearing - or are already hearing - the qualifications from all sides. Skeptics will say: yeah, I guess it looks okay, but let's see sales; this is just AAPL making up for having dropped the ball by letting the last refresh get too long in the tooth (some of these people will be buying Mac magazines on the sly to oggle at the centerfold, but they won't admit it). That's fine. Sales *will* be there. Those who love AAPL but always expect too much will say, but the Cube is too expensive. Or it doesn't have enough of this or that. Or the colors aren't that night. *grin* But we can forgive these excesses on all sides, because the next couple of quarters are going to be "Goodbye comeback kid; Hello, force to reckon with."

Why? Check it out:

Pricing. This is a big issue. There must be a formula for how many new users you can expect to attract with each $200 dip in price, but dipping down to $799 from $999 on the entry-level iMac is a significant event. That's a 20% decrease in price. That alone is enough to breathe more life into the iMac line-up, especially as the historically strong back-to-school-and-then-up-to-Christmas season starts. That sweetens the trap. And the iMac strategy is a great bait-and-switch trap that worked very well for at least two quarters (and maybe even last quarter, which was weak not only because of a long period without refresh but also because, gosh, remember it was a bad quarter for biggish ticket consumer items and the PC industry as a whole). The $799 iMac is now a much sweeter bait, a bait that more than holds its own in price to any of the Wintel offerings. I mean, this is pracitcally in the thick of E-Machines territory, but it's still a much better brand name. But, of course, the new colors and refresh in the line-up of iMacs from top-to-bottom.

Now couple that with the new marketing and distribution channels for the iMac, and that iMac is dead stuff will soon seem quaint. Every product can get fatigued, and consumers do put off purchase of computers when they expect an ungrade soon (just like oil refineries, who didn't buy enough crude 'cause they were worried they'd get caught with too much inventory whent the prices came down). (Plus, again, consumer spending on computers was weak last quarter for the industry.) The answer to fatigue of a fundamentally sound product: lower the price, refresh it a bit, new colors and upgrade. In other words, the trap has been rebaited for AAPL.

And that's just the start...

The G4 pro line. Two processors for the price of one. The G4 expandable tower of power once again addresses the needs and demands of the professional market. On top of that, the third-party graphics support outlook looks good. Whether that came from AAPL pressure or spontaneously from card makers and the like wanting to make more mulah with AAPL is not important. The outlook looks good. The graphics power users are not going to be defecting anytime soon. Enthusiasm restored at least for, what, a few weeks, months maybe? :) Plus, ya know, IBM and MOT will eventually improve their chip-making, but until then, we need to something. We'll admit that MHz means something to some people. Dual processor G4s for the price of the old single processor ones. AAPL did what it could, what it had to, and soon Mac OS X will give AAPL more chip freedom, if it desires to take advantage of that.

The displays. Caught up in the harder hardware hooplah, I haven't looked that closely at them, but they do look nice. Very nice. A nice and sweet refresh to the display lineup.

DV. Making progress on the software. Solid. What we expected. Moving incrementally forward. DVD and FireWire capabilities on the Macs just great, of course.

The mouse. Great much-needed "small" improvement that is a big improvement. Not only better, but also helps build confidence that AAPL listens to consumers. Same with the keyboard.

Third-party fervor. Ah, here's one of the relatively unsong stories of MWNY. Third-party support is getting better and better. Critical mass. More options. Hardware-wise and software-wise. It's really fantastic. All the big players on board software-wise for Mac OS X. The hardware options really seemed to gain another head of steam this time around. Sooner than you anticipate, the old plaintive "but the Mac doesn't have the same choices in software and hardware options" will be a forgotten lament.

AND, of course, last but not least (well, not last, but last or this post), we got da CUBE! Sure, it's priced higher than the iMac. So what??? First of all, because the economies of scale for production haven't been ramped up yet, it should be more expensive. Adoption cycles work that way. Secondly, it fills the big hole in the matrix: the midwest between the colorful iMacs on the left and the big, burly G4 pros on the right. That's middle America, baby. It's the small businesses and, whoa, maybe even bigger corporations (esp. when Mac OS X comes out) that want more power and flexibility in terms of monitor size but don't want the big G4 tower. I know a number of people who want something with the G4 tower's power but not its size. Yet there's still enough that the G4 pro line has to make it distinct from the Cube, so there's not that much overlap and cannibilization. It's business users who can use this thing. It's home users who want more power and bigger monitors. It's anyone with space contraints. It's all the people who want to buy the cool and novel thing too, and that'll also be a good draw for a quarter or two, until the next new thing from AAPL comes out. Most of all, it represents the choice for any user who was turned off because the iMac was too hot and the G4 too cold (or vice versa). Based on the breadth of these kind of complaints, the Cube should have a big market.

And the little things still: like the combined USB/video/audio cord to minimize cord clutter. Little things add up. Makes for a more earnest and authentic easy-to-use and ergonomic computer. A better experience. Like the introduction of slot-loading CD drives nine-months ago. The whole package. The total experience. That's one big reason the iMac succeeded where the WebPC and its insincere brethren failed. The experience improves, which means even higher retention of new users and switchers in the future.

This is THE quarter. We ain't gotten no respect. That's going to change when the next couple earnings reports come out.

Product line-up-wise, this is the best quarter yet. So far. :)


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