Linked by Thom Holwerda on Mon 17th Oct 2005 13:03 UTC, submitted by Hakime Seddik
Apple "This is partly a story about a company called Apple Computer. It's also partly a story about a fancy new iPod that plays videos as well as music and that could dramatically change the way people entertain themselves. But it's mostly a story about new things and where they come from, about which there are a few popular misconceptions."
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Fatal!
by alcibiades on Mon 17th Oct 2005 17:37 UTC
alcibiades
Member since:
2005-10-12

A good rule is that any phenomenon which is endorsed on the cover of Time or Business Week has just peaked. So, the famous Death of Equities cover marked the end of a great bear market.

This article fairly thoroughly misunderstands the strengths and weaknesses of Apple. The first thing to look at is revenues and financial performance. Take a look at

http://quicktake.morningstar.com/Stock/Income10.asp?Country=USA&Sym...

where you will see that revenues over 10 years show a decline with some pickup over the last few years. This is not a growth stock, whatever the hype is. You can find out elsewhere that PC shipments this year have been about 1.2 million. Ten years ago they were about 1 million. This has been a stagnant product line.

Now, you can say its a real achievement to still be in the PC business, and it may be, but this doesn't affect the point. Any other company with a similar record in any other product area would be looked at as ho-hum, an indifferent performer.

The article reveals the extraordinary illusions that evidently exist about this in the mind of the people who work there. We hear, for instance

"The historical way of developing products just doesnít work when youíre as ambitious as we are", that they jokingly think Sony is renting space over the street to spy on them, that "they have a strong sense that they are the chosen of the earth". That "One reason Apple makes its own hardware and software is that when Jobs goes to the trouble of creating a piece of software, he doesnít want it running on hardware built by a bunch of dudes he doesnít know and canít fire".

You don't know whether to laugh or cry. If they really think because they have succeeded with iPod, this makes them among the most creative product people on earth, they are nuts. If Jobs really thinks Apple makes its own hardware, he is delusional. If they think they are unique in their ambition, do they really see it fulfilled in the revenue and profit numbers which the world sees? If they really even think much of "their" design is their own, they can't know anything about their bills to subcontractors, or what they are for.

What is the real story? Apple had one enormous opportunity back around 15 years ago in the PC business, and blew it. They then came out with a string of products which were neither innovative nor particularly good quality, and lost share and shipments fell. They were not ready for the competition presented by W95, W98 and finally XP. Part of the reason they were not ready, and part of the reason they produced such a string of duds, was that they really believed then what they evidently still believe, that they were among the chosen of the earth.

They have now managed a few seasons of rapid product introduction and share and revenue gain in the consumer electronics, music business. The computer business has recovered to some extent, but their essential strategy has been to treat it as a cash cow while diversifying into consumer electronics. The two together have produced a few years rising revenues and earnings. But what they have not done is demonstrate constant stream of innovative products, rising revenues and earnings. They have not shown they are any more than a company which has had a few brilliant flashes, a lot of duds, and little depth. They have not shown they are a growth stock worth paying a heavy premium for.

Now that they have made the cover of Time as innovators, we must fear the worst for them. The most dangerous thing any company in their situation can have, is the attitudes reported in this article. And very few survive such accolades by Time without a collapse of some serious sort, usually in months.

Reply Score: 2

RE: Fatal!
by skingers6894 on Tue 18th Oct 2005 04:08 in reply to "Fatal!"
skingers6894 Member since:
2005-08-10

I'm sorry, have you been asleep for the last 3 years? Apple have been releasing products at a regular rate that everyone is trying to play catch-up with.

I'm not sure whether you noticed or not but Apple just reported a quarterly profit of over 400Million, their biggest quarter ever. They have also managed to accumulate over 10 Billion in cash, through guess what? A regular stream of profitable quarters.

Sales on iTMS are growing exponentially and their market share in computers is growing at 4 times the market rate right now according to data from the quarter just gone.

Yeah, they are in BIG trouble!

I know 10 years ago people were suggesting that Apple got it all wrong because "it's about the software stupid". Turns out it might have been about the "content" and in that world the "whole widget" approach of Apple might turn out to be the way to go.

Reply Parent Score: 1

RE[2]: Fatal!
by alcibiades on Tue 18th Oct 2005 05:52 in reply to "RE: Fatal!"
alcibiades Member since:
2005-10-12

Have I been asleep for the last three years?

No. And I do not think Apple is in big trouble at present, other than that experience shows anyone acclaimed on the cover of Time or Business Week is almost certainly peaking!

What I and some others are saying is, look at the facts and look at the numbers. The rest of the world is not trying to catch up. What has happened is, Apple has at last caught up somewhat in the PC product line, and has developed one new leading product line in the music space. However, it is a long way as a company from consistent profitable growth based on innovation. It is a long, long way from the kind of innovation and growth that characterised the great days of, say, 3M. A three year recovery from financial disaster is a good performance. Jobs and the team deserve credit for it. Its doesn't deserve all these hysterical accolades. It is not a reason for Cupertino to think they are the chosen of the earth. Its just what the general run of companies do, and its what good turn around CEOs do.

Look again at the morningstar numbers, and you'll see this is right. While you are at it, look at Cisco and Dell performance. Look at IBMs fall from grace and recovery. This is a company like any other.

And a subcontracted box that allows people to watch Desperate Housewives at low resolution may make money. But it is not brilliant, creative, innovative and so on. Its just another product.

Reply Parent Score: 1