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by Wes George
 Apple,

Finances,

Money,

and Trading.

Mmmmmmm...... Good




Divide & Conquer: April Numbers Read Awry
May 24th, 1999

Divide and Conquer?

OK, let’s get this straight. The iMac is the best selling computer in the United States. Period. So says the Macintosh News Network, "the iMac was the No. 1 selling computer during April by a slight margin, if all colors and processor speeds were combined, according to David Ferguson with PC Data."

That gives Apple third place in overall retail sales! Period.

Here’s Bloomberg’s take on the latest PC Data report. "Among individual PC retailers, Apple Computer Inc. showed the strongest growth, more than doubling it’s units sold from the year-ago period and nabbing the third-largest share of the retail market."

So what’s up with this taunting subtitle, "For the iMac, April is indeed the cruelest month" from CNET news.com? The article goes on to beguile us with: "Apple's popular computer (iMac) dropped out of the top-five retail sellers as customers continued to flock to low-priced machines, according to a study."

Bullhockey. The iMac is cataloged as a separate product for each of it’s various colors and revisions. While it’s true that no single revision or color of the iMac was in the top-five best-selling computers of April it’s also true that when the 12 (count ‘em) different types of iMacs are tabulated as one product, the iMac is Numero Uno.

A few pundits are making a big deal out of the fact that this is the first time that some single version of the iMac hasn’t made the top-five since the Bondi Blue debut in August of 1998. However, April saw 5 new versions of the iMac added to the marketplace diluting the statistical profile of any one version by about 100 percent from March. It’s just a number/head game they’re playing.

For the purposes of tabulating retail sales, it’s misleading and downright bad sportsmanship for PC Data not to call an iMac an iMac. Sticklers for details will point out that the iMac does come designated from Apple as 12 different models.

This confusing situation started back in January when PC Data decided to recognize the iMac as 7 different models, one for each color, plus two revisions of the bondi blue original. Hey, that’s the way Apple does it, they said. At the moment there are 10 different models available. It’s forever more going to be a chore to calculate total iMac retail sales.

Since Apple’s model number scheme gave PC Data the opportunity, which they happily leaped at, to obscure iMac sales perhaps Apple would be so kind as to issue a clarifying addendum to the PC Data report each month. Apple could do this in the form of a news wire press release explaining where the iMac would rank in sales if tabulated as one product rather than ten.

For me, at least until the iMac comes out with a 17-inch screen or rabbit ear antenna, an iMac is an iMac. Sure, PC data is probably getting tired of the iMac being in the top-five every month. It looks bad that the alternative to the mainstream can do so well for so long. Maybe the conventional wisdom on what a PC should be is merely conventional, not wise.

This situation reminds me of the CPU MHz comparison problem that RISC PowerPCs have with the Pentiums. You know, the fact that the top of the line Macs come with a 400Mhz CPU, thus appearing lame to the unwashed Intel pagans worshipping at the Pentium III 500 MHz altar. Peoples’ perceptions, often misinformed, really do count in the decision making process that goes into each and every sale. It’s Apple’s responsibility to make PC to Mac comparisons clear to the public, whether we’re talking MHz benchmarks or iMac retail sales figures.

That said, having the iMac divided into 10 models does have advantages. It let’s us parse the news ever more finely. According to PC Data the top selling iMac at 7th place was the trusty old G3/233 MHz, Bondi Blue with an average price of $900. Note: The cheap price tag equals top selling model.

Next best selling was the Rev D blueberry iMac G3/333 MHz, which ranked 21st with an average price of $1,165. The rest of the colors and revs were scattered across the range of 45th to 131st place.

The message is clear: cheap is better. The best selling computer on PC Data’s list was Compaq's Presario 5070, which sells for around $670. This machine, as you can imagine, has nothing going for it but it’s price and the promise that you’ll obtain Zen-like patience as you master the arcane Art of Wintel Maintenance.

71% of all retail sales have gone to the sub-$1000 PC market. In fact, all five of the official top besting selling computers were priced under a $1,000. Overall revenues for the whole PC industry are down almost 18 percent from this time last year. Profit margins are also trending downward, even for Apple, the profit margin king.

PC Data’s report emphasizes a new commandment in the PC world. To be a best seller thou must be priced below $900. The caveat to that axiom, at least for the moment, is that it doesn’t apply to Apple. But it does apply to Dell who sells most of it’s computers in the +$2,000 and has yet to get serious about the sub-$1,000 market. Last week, Dell tanked on the announcement that it met it’s quarterly earnings number right on the head. Savvy investors saw Dell’s gross margins shrink almost a full point and must be worried that Dell won’t play the low-end consumer game with Compaq and HP.

Cornucopia of Innovation

Apple has some big questions to ask itself in the next few quarters. Is Apple the computer manufacturer for the rest of us? Or is Apple’s product line so insanely great that it’s impossible to deliver Macs for under a thousand bucks? The answer is for Apple to think different. After all, if this is the Information Age, then ideas are a capital resource.

The PC price war is finally coming to Apple’s doorstep. "The average price for Windows-based PCs fell to $947 (in Feb), representing a 17 percent decline from last year." Says a CNET news.com article. The sub $600 PC market grew 657 % over last year and "… came at the expense of PCs in the $600 to $1,000 PC price range, where unit share fell 12.9 percent." According to the same article.

Apple can handle the price war challenge. After all, there is at least one iMac model selling in the $900 average PC price range and others will soon join it. Apple also has the highest gross margins in the industry.

High gross margins are a double-edge sword. Good, because high margins mean a bigger pile of cash to take care of details like marketing, R&D and increasing production capacity. Bad, because higher margins tend to keep the price of your products higher and thus limit one’s ability to capture market share. Of course, at this point it’s an open question whether Apple can grow fast enough to meet demand anyway so lowering the margins might actually be unproductive. Lowering one’s margins can also set a stock up for getting whacked by investors a la Dell last week.

Apple can be insanely great while being the computer company for the rest of us because they thought different and are developing information appliances while the rest of the PC universe rests stagnantly on their decaying laurels.

As computers play an increasingly larger role in our lives, people will demand more quality and style from their information tools. Just as the automotive industry couldn’t arrest the evolution of vehicles at the Tin Lizzy stage, PC manufacturers are going to have to innovate or die.

In the long run the only sustainable model for turning a profit in the computer hardware market is not to out price your competitors by tricking the consumer to buy your low-end crappola, but to capture peoples’ hearts and minds with stunning form and function factors. Sure, shaving a few pennies off a diode here and a chipset there counts but the iMac proves creative leaps of the imagination are what leads to true growth.

Or as Scott Rosenberg puts its in his intelligent overview of Steve Jobs’ career:

"Near the start of "A Bug's Life," this season's computer-animation blockbuster, the dejectedhero -- an innovative ant named Flik whose ahead-of-their-time ideas keep backfiring -- breaks down and cries: "I'm never gonna make a difference." Halfway through the movie, when Flik's grand scheme to save the colony has gone awry, he repeats: "I just wanted to make a difference." The ant queen sternly reminds this renegade that "it's not our tradition to do things differently" -- but thinking differently wins out in the end."

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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