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September 29, 2000
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A Silver Lining?
OK, so we're going to get punished tomorrow - that's a given. The question I'd like to raise is, can anything good come of it?
As good as Apple's turnaround has been, and as much as I like their products in general, there has always been a side to "The New Apple" that has bothered me. It reminds me of watching "Cops" where they catch someone red-handed doing something illegal, and when confronted, the "suspect" will just look the officer in the eye and lie his or her butt off.
What Apple tends to do is put out something that the public doesn't want (puck mouse, tiny keyboard), or they misread what the public really wants (CD-RW instead of DVD-ROM drive, video output in first generation of iBooks), or they ignore the cries of the critics (Cube too expensive, insufficient standard RAM and storage in most model lines), but for whatever reason (arrogance, poor marketing studies) they just keep going their own way.
I'm hoping that this will be a wake-up call to Steve Jobs and his executive team. We all (present company included) make excuses for Apple whenever they are matched - hardware component for hardware component - against their PC competitors. Common excuses sound like this: "The Mac OS is so much better than Winbloz" or "The styling puts those beige hunk-of-junks to shame." Unfortunately, we also tend to overlook the real benefits of the Wintel platform, such as more software and a choice of CPU vendors, to name but two.
If the Macintosh isn't selling well across the board, what should Apple do about it? Let's look at the education market, which Fred Anderson singled out as coming up short. By all accounts, Apple totally botched the transition of "At Ease for Workgroups" to "Macintosh Manager" (http://www.macintouch.com/macmanager.html). They have yet to release an AirPort Base Station that supports more than ten clients (http://til.info.apple.com/techinfo.nsf/artnum/n58727). The first iBooks - an education-designed Mac if there ever was one - lacked adequate memory, video-out, a microphone and had a cheap single speaker. Also from MacInTouch, this little item about changes in the educational sales force:
"A number of readers forwarded a note from Apple describing changes in educational sales: '...As part of increasing the number of Apple employees servicing our K-12 education programs, Apple will discontinue all current K-12 Education Sales Agent contracts effective July 1, 2000. After this date, sales activities will be handled directly through Apple....'"
My personal beef is the DVD-ROM rather than CD-RW drive. I'm sorry, but there is absolutely NO EXCUSE for not having a CD-RW drive as standard equipment in each and every Macintosh!! This would quiet the critics on two fronts - the Mac would finally have a writable removable media drive, and they could burn music CDs. It took Apple just short of two years to finally get the hint that the public didn't like their tiny keyboard and puck mouse - I sure hope they can fix this glaring omission a lot quicker than that!
Back to the hardware front. Right now, Apple is pretty much stuck (from a PR standpoint at least) with an also-ran CPU. As good as the PowerPC is in space and power efficiency and in a few selected Photoshop tests, it is falling further behind all the time. I just hope that Apple has Mac OS X - complete with Aqua - running on Intel hardware in a top-secret lab somewhere.
However, until that situation improves, they can surely close the gap elsewhere. Just read the PC Magazine test of the G4 Dual Processor (http://www.zdnet.com/pcmag/stories/reviews/0,6755,2631549,00.html) to see where the Mac falls down in areas other than the CPU. If you don't feel like reading it, the Mac falls behind in storage (slow and small hard drives), system bus (100MHz vs. 133MHz), backside cache (running at half-speed), and poor graphics (2X AGP vs. 4X), and more.
The way I see it, Apple can do two things. They can repeat the standard excuse put forth by other companies not meeting earnings expectations ("weak Euro, high energy prices"), or they can take a long hard look at ways to make the Macintosh a more compelling story. If you're a niche player, you often have to offer more than the competition to stay in business. If high-end Wintel PCs have a certain hardware standard, then Apple needs to at least meet that standard, and hopefully beat it.
I hope that Apple regroups, and concentrates on quieting the critics. I don't long for the days when Apple was always talked about as "beleaguered Apple." FireWire, CD-RW and 128MB of RAM standard across the board. Free dial-up internet access for as long as the Mac is under warranty (included or extended). Better and more complete software offerings at the Apple Store (did you know that you can't even order Microsoft Office with a new Mac?) Class-for-class hardware parity to the degree possible.
I'm still long-term AAPL, and my shares will remain unsold for the foreseeable future. Part of the blame of Apple's recent woes can be blamed on timing - the entry-level iMac missed the critical period where education sales are made, and the Cube has only just started being advertised. When Apple starts to advertise Mac OS X, I see considerable upside to this stock.
I am concerned about Apple's revised future estimates, however. Next quarter's financials will be an interesting read to say the least.
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