BUSINESSWEEK ONLINE : OCTOBER 16, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY Commentary: Emerald iMacs Are Nice, but... Since mid-1997, Apple Computer Inc.'s ( AAPL) recovery has unfolded like a corporate fairy tale. That's when co-founder Steven P. Jobs, like a once-banished king, returned to save the day. After years of indecision, Apple once more was on the cutting edge. Jobs weighed in on minuscule details of Apple's snazzy new products and worked fans into a near-frenzy at his rock concert-like product introductions. He even took on the task of helping to write ads for Apple's ''Think Different'' campaign. It was the equivalent of ''management by ego,'' in which anything Jobs ordered up seemed to work. But saving Apple is only part of the job. And to keep the company growing, it may be Jobs himself who has to start thinking different. On Sept. 28, Apple announced it would fall badly short of revenue and profits expectations for its fourth quarter, ended Sept. 30, and that it would reset expectations for next fiscal year when it reports on Oct. 18. Even the magic Jobs had spread over Wall Street evaporated, as investors ruthlessly drove the stock down 52%, to $25. SLAMMED. Why so vicious a reaction? It starts with Wall Street's jitters about PC demand, which have brought down the stocks of Intel, Dell, and Hewlett-Packard in recent days. But it's far more than that. There's also growing concern that the Jobs formula for recapturing lost market share--pump up the profits by selling sexy-looking, premium-priced products to a core market of Apple freaks--was little more than a short-term fix. ''The next phase, which is key to sustainable growth, will be much more difficult and Jobs will need to make fundamental changes,'' says Sanford C. Bernstein & Co. analyst Vadim Zlotnikov. Rather than the 20% he initially projected, Zlotnikov now believes revenues will grow just 11% next year, to $8.9 billion, while earnings could decline 13%, to $540 million. To reverse the situation will require more than Jobs's legendary marketing gloss. For starters, Apple needs to get back to the visionary products that have made it famous and fueled its recovery. Take the iMac desktop, which was unveiled in 1998. Its all-in-one configuration was not only lovable but made it a snap to get online, and it came loaded with digital connections so that users could easily post movies and music to the Net. The iBook in 1999 gave schools and parents a scaled-down laptop that was not only wicked cool but drop-resistant. Apple's 2000 crop of products is little more than eye candy. Sure, the PowerMac G4 Cube (see review, page 29) looks great. But consumers recoiled at the $2,300 base price that Jobs figured they would pay; meanwhile, the market is dominated by PCs that sell for less than $1,200 apiece. The 100,000 units sold are only about half what Apple insiders had expected, say analysts. And it's not likely the Cube will be a late bloomer. Net message boards are filled with customer complaints about such things as mold lines in the plastic casing. More important, Jobs needs to avoid the hubris that has stopped Apple's gold eras in the past. That means lowering the price of the Cube--and improving the iMac. It now lacks basic features many shoppers want, such as a rewritable CD-drive for creating custom song compilations or storing home movies and larger 17-inch monitors. Rather than invest to make these changes, Jobs opted to add new colors and cut prices. It didn't work. Market researcher Allison Boswell reports that iMac sales in the U.S. dropped 30% in the most recent quarter. Maybe even more crucial, Jobs must think different about where Apple's future lies. So far, he's slashed long-term research and development, confident that Apple can prosper by taking PC market share. But without investing more in innovation, he has hurt Apple's ability to come up with the Next Big Thing. Now, Jobs should move boldly into new areas such as handheld or TV-based Net access devices. It's a risk, to be sure, as many companies have found out with gizmos that bombed. But Apple made its name by taking risks. And even Steve Jobs needs to take the risk of thinking different if he hopes to see Apple's fairy tale continue. By Peter Burrows Burrows follows Apple from Silicon Valley. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					INTERACT E-Mail to Business Week Online

Copyright 2000-2008, by The McGraw-Hill Companies Inc. All rights reserved. Terms of Use   Privacy Notice