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by Wes George
 Apple,

Finances,

Money,

and Trading.

Mmmmmmm...... Good




Is Apple A Software Company Or A Hardware Company?
September 7th, 2000

By next week the Sturm und Drang of Mac OS X will overtake the various Mac communities in all its fury. So I figured this is my last chance to wax analytical on Apple's hardware design strategy for all those who didn't read my article about the iMac's axiomatic design and to elaborate on how Apple's engineers seems to have outdone themselves again with the G4 Cube.

The Wintel PC vendors have been clamoring all year to implement "beyond-the-box" strategies, meaning they're struggling to metamorphose into something other than what they are. Conventional wisdom suggests slowing growth and falling profits for beige box PCs sales. Since Dell, Gateway and Compaq might as well be selling toasters as PCs, it makes good business sense to the pragmatic bean counters who rule these soulless corporations to migrate to wherever the money is.

Apple on the other hand has increased its focus on hardware design at a time when others are throwing in the towel. Have you noticed that Dell and Gateway are both so ashamed of their hardware they have given up illustrating their commercials with images of their PC products? Instead, like a lame Gore versus Bush debate, one is for family values and the other claims to have invented e-business. Where's the beef? No wonder Ashok Kumar, a US Bancorp Piper Jaffray analyst, said PC sales might be half of what Wall Street expects for the second half of 2000. Meanwhile, Apple's speechless commercials are psychedelic visions of swirling hardware dancing like sugar plum fairies in your head. Not a single word is necessary. I can only imagine what the commercial for Mac OS X will be like. Too bad Beethoven's 5th is overused, maybe something from Phillip Glass would work.

Yin and Yang

Apple is the world's premier PC hardware company. But that's only half the story. Apple has been a "beyond-the-box" company from the very beginning and feels no pressure to reinvent its business model to fit into the so-called post-PC era bearing down upon us. In recent years it's been easy to forget that Apple -- unlike the other PC vendors -- is a software developer too. But when people begin to grok OS X later this month, pundits will argue persuasively that Apple, at its foundation, is primarily an OS company since everything else Apple does depends upon the Mac OS.

Hardware is where the vast majority of Apple's revenue and profits comes from, but Apple's soul has always resided in the Mac OS -- that's what truly sets Macs apart from the PC herd. The Mac OS is variously a religion, a franchise, a philosophy, a secret code, an open code, a way of seeing, an abused minority platform, a vision of the future, a legacy of the past, and ultimately The GUI That Changed The World, even if it didn't conquer it. For much of Apple's history hardware has taken a back seat to the Mac OS as the expressive DNA of Apple, even while doing most of the cash-flow heavy lifting.

So let the Mac OS X metamorphosis begin and we can all caterwaul over whether Apple's insanely great hardware is a match for the insanely great paradigm shift OS X will present the industry with. Already, financial analysts realize they underestimated the positive double whammy effect a postmodern, semi-open source OS combined with Apple prescient hardware designs would have on the stock price. Investors love to invest in the future, and Apple has that in spades.

In fact, the timing for Mac OS X couldn't be better. Pax Microsoft is slowly decaying; the open source tribes already occupy the frontier. The Mac tribe -- at least partly sympathetic with the open source religion -- is more than likely to expand its domain as the decline and fall of Windows progresses towards its inevitable fate. Some day soon we won't be able to tout AAPL's stock as the most chronically undervalued in the PC industry. Of course, Apple's stock price could double and still be below the price valuation assigned to Dell, Compaq and Gateway.

But let's talk hardware, one last time…

The G4 Cube

In its own way the G4 Cube has perplexed and left more people speechless than either the iMac or iBook. The Cube is a more radical design departure from PC norms than either the iMac or the iBook designs, which are aerodynamic forms of stodgy but familiar PC shapes. The consumer mind is comfortable with design metamorphosis moving from blunt and square to curved and streamlined. Automobiles, phones, stereos and even kitchen appliances have followed similar design trajectories over the course of last century. But the Cube represents a discontinuity in the evolution of desktop forms rather than the next most obvious morphogenic step towards something the Jetsons would recognize.

The G4 Cube's design is the result of a complete rethink of the desktop PC using the latest and most miniaturized components that fall within cost-effective parameters. Like the iMac, whose design I think I proved has little to do with superficial ornamentation, the Cube's design is built around engineering and functional parameters. The form of the Cube emerges naturally from the engineers' fidelity to the purpose the Cube was conceived to fulfill. That's what makes the Cube such arrestingly beautiful solution.

The guiding principles behind the G4 Cube's form are based on a design philosophy which first emerged in the 1920's at an architecture school called the Bauhaus, founded by Walter Gropius in Weimar, Germany. Among the many legendary teachers at the Bauhaus were the visionary architect Mies van der Rohe, and the color theorist Josef Albers. Steve Jobs traveled to Germany to enlist a Bauhaus inspired industrial designer, Hartmut Esslinger, to help invent the shape of early Macintosh PCs. Today, everyone knows the Bauhaus for its most famous design ethic -- Form Follows Function, but few have the discipline to live by it.

The Cube is the Cube because the Cube is the most pure engineering solution to the desktop challenge. This form follows function minimalist approach is the secret to Apple's success with its new product lines.

Apple has arrived at the ideal desktop PC forms with the iMac and G4 Cube well before the Wintel herds have even imagine how to escape their beige tower prisons. In fact, Apple's ability to capture these archetypal PC forms seem to be central to the company's hardware strategy and key to their financial success as well.

The Midrange Gap

A number of articles have been written by tech pundits baffled by the Cube. Personally, I don't see what the confusion is all about. Before the Cube, Apple offered the Power Mac G4 and the iMac as the two Macintosh desktop PC solutions. The G4 was clearly a high performance machine targeting the professional market. Of course, it makes one heck of a desktop for home use, but the G4 is more than most people need.

At the other end of the PC spectrum, the iMac represents the high end of the low end PC world, which for Apple is as low as the company would go. For years Apple, with its four corners strategy, was leaving the middle ground between the high end of the G4 and the low-end of the iMac unattended. Amazingly, there were few complaints from the Mac faithful. The calls for -- and the rumors of -- a 17" monitor iMac were manifestations of the need for a middle-of-the-road Macintosh. Also, the iMac's inherent luxury of a built-in monitor is a draw back for people who might want two monitors or already own a monitor.

The introduction of the G4 Cube, in conjunction with the Power Mac G4's upgrade to dual processor status, completes the Macintosh desktop product line very nicely. The G4 dualie is a really high-end machine since the dual processors are useless to the bulk of consumers running Quicken, Office 98 and surfing the Net. Meanwhile, the G4 Cube offers monitor and power choices unavailable to iMac users. In fact, the Cube should spark increased flat panel monitor sales as it catches on.

Don't expect the G4 Cube to have the same scale of success as the iMac, at least not initially. The G4 Cube, as the new midrange workhorse, doesn't need to be as popular as the iMac to be a roaring success for Apple. It won't attract as many first-time buyers to the Mac market as the iMac, but could see comparable numbers of platform migrants.

The Cube is a fourth generation desktop design and its subtleties are best appreciated by those with considerable PC experience. What new user worries about desktop real estate, cable spaghetti or the white noise of a cooling fan? The ingenious way the Cube's guts separate from its shell is best appreciated by former owners of 9500s.

I would expect most Cubes, at least this quarter, to be snapped up by rather sophisticated Mac users as their third, fourth or tenth computer with almost all sales coming from the Apple Store. Fears of the Cube cannibalizing iMac sales aren't particularly convincing. The target audiences are entirely different groups of consumers. The understated elegance of the Cube isn't like to draw from the youth market attracted to the iMac's colorful statement.

The Cube may not sell a million units before Christmas, but that hardly matters. The Cube is about the future. It's the magic box for OS X. The Cube is the product design with perhaps the longest shelf half-life Apple has ever devised. Apple captured this most elegantly minimal of forms because their world class designers know that its pureness and simplicity will be even more appreciated later as arbitrary PC designs proliferate in wild variation like orchids in a rain forest.

The Cube will be a useful and unambiguous desktop solution for perhaps the rest of the decade since in its ultimate simplicity the Cube can hold whatever Moore's law throws at Apple for years to come without becoming dated kitsch. That's the whole idea behind excellent design, it's not some trick to get consumers to buy what they don't need, but to create enduring value. Value that other PC manufacturers can only hope in vain to find beyond-the-box.

Your comments are welcomed.


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Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!

Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.



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