BusinessWeek: Apple Doesn't Need To Gain Market Share To Thrive

by , 11:00 AM EST, January 28th, 2003

BusinessWeek has published a rather interesting bit of commentary on Apple's future. In the midst of an increasing number of Death Knells from analysts and pundits who don't understand Apple as a company, the Mac platform, or Mac users, Peter Burrows offers a surprisingly insightful look at the company.

The short version of Mr. Burrows' thoughts are that Apple doesn't really need to grow market share to continue to thrive. He justifies that by saying 3.5% of US$160 billion leaves plenty of room to continue to innovate, and includes comments from Don Young of UBS Warburg, an anylst who does understand Apple. From BusinessWeek:

Going by the numbers, Apple Computer Inc. appears headed for trouble again. While CEO Steven P. Jobs engineered a remarkable comeback after retaking the helm in 1997, one-time expenses, such as plant closures, have pushed the company into the red for two quarters running. For the one ended Dec. 28, Apple reported a net loss of $8 million on revenues of $1.47 billion, vs. a profit of $38 million a year ago. Worse, Apple's share of the U.S. PC market is hovering around 3.5%, according to IDC analyst David Daoud. That's down from 13.4% a decade ago and 4.2% in the year after Jobs returned.

But fear not, Mac faithful: Apple may never again pose a threat to Microsoft Corp. and its PC allies, but its niche is safe. In the $160 billion PC market, a 3% market share should be enough to fund Apple's research-and-development push. So long as Macolytes keep paying Apple's high prices, its 28% gross margins should far exceed PC rivals--especially if it keeps expanding its portfolio with non-PC products such as the iPod MP3 music player. "The battle for market share ended 10 years ago," says UBS Securities analyst Don Young. "But there's a place in the PC world for an innovation leader."

That's good news for consumers. Apple continues to be the trend-setter for the PC industry, which has been far more focused on cost-cutting than on innovation. In recent years, Apple has drawn crowds of copycats with its AirPort wireless networking gear and its flat-screen iMacs. Now, Jobs is sparing no expense on the R&D front. Even as revenues fell from $8 billion in fiscal 2000 to $5.7 billion in 2002, Apple's R&D outlay surged from $380 million to $446 million.

The new products keep coming. At the Macworld convention in early January, Jobs unveiled two snazzy new notebooks. More important, the company introduced iLife, its suite of video, music, and photography software that allows anyone to give home movies professional gloss--innovations that almost surely will end up in Wintel PCs.

The commentary goes on to look at some of the negatives facing Apple (professional and education sales), as well as Apple's attempts to grow revenues outside the Mac itself. You can read the full article at BusinessWeek's Web site.

The Mac Observer Spin:

We found this article nothing short of refreshing. It offers an honest look at some of Apple's shortcomings, while offering an equally honest look at Apple's future. We aren't used to seeing that of late, as scores of lemmings have been leaping from the cliff to the "Apple is Dead" bandwagon. Again. It's like they never learn...

We don't agree with everything in Mr. Burrows's article, but it is a thought-provoking and insightful piece, and well worth your time to read. That it was published in a mainstream magazine like BusinessWeek makes it all the better.

BusinessWeek Article