|[3:30 PM] Live Coverage Of Apple's Analyst Meeting
by Bryan Chaffin
Thanks for staying tuned to The Mac Observer and for not hammering us on our spelling issues as we scrambled to cover this. :-)
[8:22 PM CST] And just like that, Fred ended the meeting.
[8:21 PM CST] Phil and Fred are once again passing on discussing market share and market share goals. However "We want to be the number 1 provider of education solutions." Analyst asked what products Apple still manufactures in facilities they actually own (as opposed to outsourcing). Tim: We look for partners who can do things better than we do, and if we find them we use them. I don't want to get into specifics.
[8:19 PM CST] Analyst: You called X a new beginning, how does this effect the Enterprise market. Avie: There is an intuition that because X supports some things like Java out of the box that it can be positioned for the Enterprise market, but we aren't really talking about those plans. We think that OpenGL should help us in the gaming market. Phil: It's not accurate to say we aren't in the Enterprise market. He cites education and the creative markets within corporations. He also cited server sales that go to the enterprise market. He is now talking about science and engineering, where Apple is getting lots of attention for Mac OS X. "We care a lot about the Enterprise market, but no in a large generic way like other companies do."
[8:16 PM CST] Fred just passed on making comments concerning the current quarter.
[8:09 PM CST] Analyst: How are you going to keep form having another inventory disaster, and can you monetize Apple's intellectual property? Fred: Repeating what's already been said about inventory. Phil on monetizing intellectual property: He isn't specifically monetizing anything, but he is emphasizing how Apple's technologies help sell Macs.
[8:04 PM CST] Avie is saying that Cocoa and Mac OS X will allow Apple to evolve the platform much faster. This includes the OS and applications. He also sees improved performance in cross-platform apps as well.
[8:02 PM CST] Fred is reiterating that they see sequential improvements across the board over the next few quarters. An analyst asked Fred to describe his outlook on the economy by way of an analogy on when Apple will be doing well again. Fred did a little verbal dance and didn't say that much.
[7:54 PM CST] Analyst: Are you looking at Auto-replenish strategies (where stock is automatically replaced in retail levels according to formula). Tim: We monitor this stuff, and we have really fast paths into the channel.... He doesn't like to directly answer questions.
[7:50 PM CST] Analyst: Can you pin down upgrade numbers for Mac OS X: Phil: There are 25 million Macs, and half of those are X-capable. We have a big potential market there. Apple thinks that the features of X will see pent up demand. This is a different kind of transition... Phil is comparing the transition from 9 to X to the transition of Windows 3.1 to Windows 95 in terms of scale. Fred: We would be surprised if we didn't see more sales for X than we did for 8.5 or 9.
[7:46 PM CST] Analyst asking if there was any data about people from other platforms who had tried OS X PB and whether or not there were indicators about how X will be enticing people to switch. Avie (we think): We have gotten feedback from non-Mac users and they love it. Higher-Education loves it. In the last 12 months, they have doubled their registered developers! This is huge! More developers = more apps.
[7:44 PM CST] Avie (we think) is saying that they are trying hard to make the Mac platform so compelling (iDVD, iMovie, iTunes, SuperDrive) it will overcome any perception issues. This is also a sound strategy. Phil is talking about education titles and creative titles (graphics and publishing) and getting that word out.
[7:40 PM CST] Analyst: Why don't you make a machine that is geared towards switching from the PC. Phil: The perception that this is an issue involves letting people know there are 15,000 titles available for the Mac. Working with retail and mail-order outlets is a part of this. Another area is compatibility. For one thing there is Mac OS X. Phil says that they are working to let customers know how compatible Mac OS X is, and how Mac Office is cross-platform compatible and the best version of Mac OS X to boot! This is something we have often preached at TMO, and it is good to hear an Apple Exec say it too.
[7:38 PM CST] Analyst: What is the point of maintaining low parts-on-hand inventory if you are going to pay higher prices for it. Tim: There is a level of risk in handling things in this fashion, but the fundamentals of keeping inventory down are still solid. This is especially true as Apple has some unique components. By foisting off inventory control on their suppliers, Apple is protected. This is quite sound reasoning.
[7:35 PM CST] Analyst: How will you get to your projections on the gross margins? Fred: Those weren't projections, but we won't kill our infrastructure to do it. The goal is 27% gross margins, which would most likely be the highest in the industry.
[7:33 PM CST] Tim on targets: More of nothing. The question is what are your targets, the answer is we have great channel partners. This kind of non-speak is NOT going to fly with the analysts.
[7:30 PM CST] Analyst: Are you rethinking the Store-within-a-store concept or thinking of putting Apple reps in each store? Tim: is stating their current efforts of the store-within-a-store and the Apple Specialists. We would investigate having more specialists, and we are proud of our Demo Days concept. Anything that would allow us to increase advocacy... Anything we can do to improve the buying experience we will do. At no point have they actually said what they will do.
[7:26 PM CST] Analyst: What are your target inventory levels, and what is your market share? Tim on channel inventory: When we entered the quarter, we were at 5.5 weeks of inventory. We'll take that down gradually over the next couple of quarters. Phil on market share: There are public sources, so go find it. He think it's around 5% He is saying they prefer to look at it market by market instead of the overall market, like market share in education, publishing, graphics, etc. This is a weenie-answer. Phil would not give target market share figures.
[7:22 PM CST] Fred is opening the floor to questions. Avie, Tim, and Phil are rejoining him. Analyst: Are you changing the way you are marketing the Cube to avoid future disappointments, and are you going to do something with all that cash? Fred: As for cash, we are battening down the hatches. "We have some key initiatives and acquisitions I can't talk about." We still have US$300 million left in the authorized funds for the stock buy back. Phil: On positioning the Cube, we are trying to get smarter about using the voluminous feedback we get. He is falling back on the way they changed OS X to meed customer feedback, but this doesn't answer the analyst's question.
[7:19 PM CST] Working to rebuild sales to US$2 billion per quarter over the next 12-18 months.
[7:15 PM CST] Fred says Apple is not planning across the board layoffs. "We aren't going to mortgage the future" for the sake of short term profit gains. Fred is now going over some basic financial numbers. His goal seems to be to convince analysts that Apple can manage its money. "We do not want to tear apart the infrastructure of this company that was very successful last year."
[7:11 PM CST] "I think we are in position to return to profitability in the March quarter. We also believe strongly that we can drive substantial improvements going forward. Gross margins definitely have to be rebuilt above 25%. Operating expenses have to be cut to around US$300-US$400 million per quarter."
[7:10 PM CST] "We feel we made a giant step forward in narrowing the MHz gap. You heard that we got CD-RW across the PowerMac. We finished the quarter with too much Cube inventory, but you heard Tim, they are working on that."
[7:06 PM CST] Fred is making a passionate speech about the heart and soul of Apple. He is saying that everyone works very hard, and is discussing Apple's vision/mission. "We all know we have gone into an economic slowdown." This impacted Apple, according to Fred. "There are evolving dynamics in the PC industry, and we know that. The PC is the digital hub and it is not dead. We all believe that. We hadn't gotten a kicker in the MHz area for 15 months. That's what people want!"
[7:02 PM CST] Fred Anderson is back on stage. Fred is beginning the financial update portion of this shindig. This is why we are all here, but they saved it for the last 15 minutes of the presentation... "Everything was going really well" for the last 11 quarters. "We rolled out some really great products in July and all the sudden the demand wasn't there." 4.6 million units sold during 2000, 32% unit growth over 1999. Fred is making a case for the fact that Apple had a great 2000.
[6:57 PM CST] He is now talking about component pricing. Memory is cheap for those who didn't already know that. Flat panel prices are getting closer to CRT prices. "We can't get enough of those [SuperDrives]." This was mentioned in passing, but it is the strongest statement on availability of the SuperDrive yet. The 4 areas of focus for Apple were defined at availability, inventory, focus on velocity, components.
[6:55 PM CST] He is explaining how being able to turn over machines quickly means that their inventory is more manageable, This is how they moved through all the built-up inventory. He is also talking about BTO issues. Apple hits 3 days to make BTO orders, the rest of the industry takes 5 days on average (but only 10% of the time).
[6:52 PM CST] Moving to shipping products now. Says that the PowerBook is now shipping. This is the same info we have already gotten. The low-end PowerMac G4s were available during MACWORLD. The high end products will be available "before the end of the quarter." That's a weaker stance than Phil or Steve took. He is saying that Apple's parts inventory is still kicking ass. Moving on to Channel inventory. Going over the 11 weeks of on hand inventory from November. Apple moved it down to 5.5 weeks by the end of the quarter.
[6:48 PM CST] Moved on to the Apple Store online. He says Apple is working on improving the Apple Store. 13% of company revenue came from the Apple Store in Q1 2000, that improved to 33% in Q1 of 2001. On the surface, this sounds good, but when you look at the overall decrease in sales, that's not necessarily a good thing. He says Apple is trying to drive more education sales to go across the Apple Store. Most of the education people we have heard from at TMO say they prefer to have face to face sales reps. This seems a no-brainer to us, but we don't run a multi-billion dollar company.
[6:46 PM CST] In Q1, the company put some improvements like training in place. He says that education sales were stabilized in Q1, though he didn't offer details. Apple is now focused on providing "solutions" as opposed to boxes. He paints a picture of Apple being heavily focused on education sales.
[6:43 PM CST] Aha, duplicating the US efforts referred to the infrastructure. He is moving on to US education sales. In Q4 (quarter ending in September), Apple moved education sales in house, made them direct sellers. 40% of these Apple reps were new employees! This is an incredible amount of change during the biggest education quarter.
[6:40 PM CST] Talking about the beyond-the-box concept. Internet Access, AppleCare, QuickTime, software, etc. are all examples of this concept. He is reiterating the idea that Apple controls software and hardware. "We've had a lot more success here in the US than we have internationally." He says that their goal is to take what works in the US and expanding it to the international markets. While it may have been his presentation, that sounds like a dubious proposal to us. What sells a box in the States will not sell a box in China. However, he says Apple is "really working on our international infrastructure."
[6:37 PM CST] Discussing Demo Days in retail outlets around the world. "The idea behind this is to create advocacy." He is showing images of the iMac in the real world, including an image from Tokyo. We have no idea what the images actually are.
[6:34 PM CST] Finally. A new person is talking about the things that matter. This would be Timothy Cook. For starters, he is hitting sales. He is looking at various stats involving home penetration in the consumer market. They are saying that Apple can gain market share from the areas where there are still in computers in the home.
[6:20 PM CST] Talking about customer reaction once X ships. This covers the time line that we have already heard once from Steve. Confirmed that this is Avie that is speaking. A new person is on stage demoing Mac OS X... This person is the product manager for Mac OS X.
[6:16 PM CST] Discussing the things that Apple added or put back in to X like the Apple Menu, disks on the desktop, the Dock, and the customizable toolbar.
[6:14 PM CST] We think this is Avie Tevanian speaking, once again, we missed his introduction. He is talking about customer reaction to OS X PB, something we didn't get at the keynote. In particular, he is saying customers were excited about how well Classic works in X.
[6:11 PM CST] Talking about having sold 100,000 copies of Mac OS X Public Beta, and the fact that they gave Apple a lot of confidence. This is once again following much of the track set by the keynote.
[6:09 PM CST] Going over the different layers in Mac OS X, Carbon, Classic, and Cocoa. In particular, he is talking about the Java implementation for Cocoa development. This is something that might resound with the analysts as Java is a buzzword. Offered a brief mention of Aqua.
[6:05 PM CST] Discussing OpenGL and the implementation of OpenGL in Mac OS X. Discussing the benefit to gamers and the 3D modeling and rendering industries.
[6:01 PM CST] We didn't catch who is talking right now, but he is talking about Mac OS X, the technical aspects, all the buzzwords.
[6:00 PM CST] Meeting resumes. CNBC is featuring Apple and the new products right now.
[5:55 PM CST] It's been 15 minutes so far, and no sign of the meeting resuming yet...
[5:41 PM CST] 10 MINUTE BREAK! Apple called for a break. We will be back in 10 minutes too.
[5:40 PM CST] Phil is saying that though the Vaio is lighter, the PB G4 has a longer battery life, and far more features (DVD ROM, Ethernet, etc.)
[5:37 PM CST] Phil is saying the PowerBook G4 is shipping, just as they promised. Comparing the unit to the Vaio. This too is straight from the keynote for those keeping score.
[5:34 PM CST] Phil is continuing his talk on the PowerBook G4... Phil called the PC Card slot the sexiest such slot anyone has made. Now that's comedy.
[5:32 PM CST] Phil is touting the display, but he is not saying that it is limited to 1168 x 768 (or thereabouts, we don't have it in front of us at the moment). That is a very low resolution for a 15.2" wide screen. It is our opinion that Apple should put some effort into changing this. Phil is talking about the Titanium shell again.
[5:29 PM CST] Phil is wrapping up the PowerMac G4 (again). Now going to the PowerBook... Didn't we hear this already? Aha, something new. He says it is made of 99% pure Titanium, not some funky diluted alloy. Interestingly, on The Mac Show last week, someone from the Titanium trade group said he had contacted Apple to ask about them using Titanium in a notebook. That turned into the product we have today.
[5:27 PM CST] Phil is discussing iTunes. Says he took an informal poll on whether or not people were playing music on their Macs. Says 100% of the people he asked said that they were playing music. This is interesting, though it is entirely unscientific.
[5:24 PM CST] AVAILABILITY! Finally. He says the 466 and 533 are available now. Phil maintains that Apple is on track to deliver the high end PowerMac G4s at the end of February! Rumors to the contrary have been circulating wildly. Phil did leave some wiggle room by saying they were working hard to meet that goal (shipping in February). Time will tell. Please note that Dan Knight of Low End Mac received his Titanium PowerBook today, so those did indeed ship in the last week of January as promised by Apple.
[5:21 PM CST] Phil is going over the SuperDrive. Thankfully, he is wrapping up this portion of his talk. Discussing benchmarking. He is saying there is no good cross-platform benchmark tools. He discussed performance...
[5:18 PM CST] Phil is remembering the good ol' days when he first discovered the ability to print from a laser printer. The analogy is designed to explain why Apple is so excited about desktop movies.
[5:15 PM CST] Phil is droning on about the PowerMac line and the various technical specs. Apple will be moving to multiple processors again when they are available in sufficient quantities. Go Moto.
[5:12 PM CST] Phil: We got a great reception from the audience at MACWORLD SF concerning the nVIDIA GeForce2Go cards. Talking about adding a PCI slot. He says that Apple listened to their customers, which is true.
[5:10 PM CST] Phil is talking about the kinds of apps that need raw horsepower and touting the 4.5 Gigaflops in the 733 MHz PowerMac G4. The new G4s are an entirely new architecture. A full Gigabyte of sustained data throughput...
[5:08 PM CST] Phil is going over hardware. He specifically said there would not be too much redundancy from Steve's presentation. We are doubtful of that, but hopefully Phil is going to get into some details that show analysts that Apple knows what they are doing. Phil is talking about the MHz gap between AIM and Intel. He is touting the Gigaflop power in the new G4 processors (that are not yet shipping).
[5:06 PM CST] Steve again apologizes for Snafus. Exits stage. Phil Schiller is taking the stage. Phil: "BTW, we do not make these clickers." The audience laughed.
[5:04 PM CST] Steve: Whenever people have predicted the collision of the PC and [insert technology here], the PC has always won. People adapt to new technologies, but so do PCs. Steve says the Mac is well positioned to adapt to today's technology.
[5:02 PM CST] Analyst talking about game consoles such as Microsoft's Xbox. How will Apple compete with them? Steve: "We believe that the applications required to make the [Digital Hug work are not simple]." He says they will have to see how the gaming consoles really compete with the PC. He is making a good argument for the future of the PC again. In our never humble opinion, he is spot on.
[4:59 PM CST] Analyst says that Apple has always taken the high road claiming a superior value, but points out that Apple does not compete in a vacuum. So how will Apple compete with companies like Gateway who are reattacking the consumer space. How will they deal with pricing? Steve says that he can't really offer guidance on pricing on a year from now because the market changes too much. He again cites Sony as their model. Steve points out that the PowerBook G4 is cheaper than some Vaio models. "Is it the cheapest? No. But it offers [superior value]."
[4:58 PM CST] Steve says the transition to Mac OS X will be made by the end of the year, not March 25th.
[4:55 PM CST] Analyst asks about the March 24th release date for OS X. CNBC is discussing Apple now. However they are not talking about what Steve is talking about. Steve is discussing how people will migrate to Mac OS X depending on the apps they use. "We're going to get Mac OS X out on the 24th. We are working like crazy with developers."
[4:54 PM CST] Analyst asks what opportunity there is for Apple for "Internet Applications." STEVE SAYS WE HAVE BEEN BLINDED TO THE IDEA THAT THE BROWSER IS THE INTERNET! Thank the gods that someone in power at a tech company will actually say this! All this crap about running our apps from a browser makes us tense at The Mac Observer. Steve says that e-mail is the number one app on the Internet and is using that to explain why moving to Internet Appliances won't replace PCs.
[4:50 PM CST] Analyst asks how far Apple is ahead of the competition with the SuperDrive. Steve says they have worked with Pioneer on it, and he is touting their software and firmware tweaks that make it work. There have been tweaks to the OS to make this possible too. He is also pointing out that NO ONE has come up with something that works anywhere near as well as iMovie. "This is hard stuff to do, this is not easy." Since Apple has worked hard, has smart people, and has done some amazing things, he thinks that it would take a lot for someone to catch up. Apple will not be giving any hints to the competition either. :-)
[4:48 PM CST] Analyst asked about whether Apple would be making digital devices. With PCs in the center, applications in the middle circle, will Apple work on digital devices per se that represent the outer circle. Steve's answer was more frank than is his usual wont, but he still isn't saying much.
[4:47 PM CST] Steve sees it as a "pro, consumer, educational" thrust. Again, not addressing the business question the analyst actually asked.
[4:45 PM CST] Analyst saying that this digital life stuff is focused on consumers. Is there a killer app for business? Is Apple thinking about this? Steve says yes. He says this stuff is aimed at consumers, but that pro customers are also excited. However, he is not addressing the business issue the analyst was asking about. He meant corporations. Steve is making a case for the business side of music and movies, and this is a good point, but the corporate market is not being addressed.
[4:43 PM CST] Steve is pointing out that you can't run iMovie on a camera (or any other app that people want) or another digital devices. He is making a great case for the concept of PCs being viable. Steve is apologizing for the problems.
[4:42 PM CST] Steve says "even you guys might want to do this" after talking about making movies or making PowerPoint presentations and then burning them onto a DVD. That got a chuckle.
[4:41 PM CST] Steve is playing the DVD he burned in a consumer DVD player. If the analysts truly grok this, that will be a good thing.
[4:39 PM CST] iDVD background and interface stuff. Fortunately our feed seems to have stabilized.
[4:37 PM CST] More of the iDVD stuff... We should be nearing the end of the keynote stuff.
[4:35 PM CST] It sounds like Steve is torturing a horse, however, it must be those two cute kids we have all seen too much of in the original iMovie commercials.
[4:33 PM CST] Once again, let us stress that though this is old hat to us, it may not be to the analysts. (more hardware problems which has got to be frustrating!) Steve cracked a joke: "the curse of demoing" which got a chuckle from his small audience. Back to the point: Analysts often need to be led by the hand through what a company like Apple is doing. These are often the same folks who think that MHz is all important and that Apple needs to exit the hardware market and just make software "like Microsoft." They need all the help they can get. Since Apple is going in a direction that no other hardware maker is going, it becomes even more important. If the analysts don't leave this meeting "getting it," then Apple's stock and image will continue to languish.
[4:32 PM CST] Steve is now going to make a DVD with iDVD. Hooray.
[4:30 PM CST] Steve is talking about how their team cracked the encoding issues to get 2X burning times. AltiVec was of course key to this. Oops, make that the Velocity Engine.
[4:28 PM CST] Steve is discussing iDVD and the SuperDrive. Steve is discussing encoding times. This is still keynote stuff. This meeting lasts 3 more hours, and it will likely get interesting once the analysts get to ask their questions.
[4:27 PM CST] Steve is demoing the various trippy sound activated screen savers included with iTunes/SoundJamp MP/WinAMP. He cracked the joke "you guys might not be into this, but this is popular." Not an exact quote. Steve is having problems with his clicker. He seems frustrated with it.
[4:25 PM CST] Egad! Love Shack is playing yet again. I've got me a Chrysler and it seats about 20...
[4:24 PM CST] This is all old hat to most of us listening, but it is vital that the analysts understand that Apple is creating compelling reasons for people to buy Apple's hardware. (Catching up: Scott says that iMacs may come with SuperDrive next year. It is our opinion that they should do this sooner, rather than later. After all, iDVD is aimed at ordinary folks and ordinary folks buy iMacs, not high end PowerMac G4s.)
[4:22 PM CST] Still demoing iTunes. If this is the first that the analysts have seen this, they are likely to be impressed. They might even get it. (Very nice comments concerning Love Shack folks. heheh)
[4:20 PM CST] Steve is about to rip a CD (the B-52's). And now we get LoveShack yet again. Go figure. That song was repeatedly played during the keynote. :-)
[4:18 PM CST] iTunes may be bundled with shipping Macs as soon as next month. Steve is demoing iTunes. Nowhere Man from the Beattles is playing.
[4:17 PM CST] Check out the comments below for some information we missed. Thanks to the Observers helping out! :-) This is indeed the keynote almost word for word, it is just a much more low key presentation.
[4:14 PM CST] So after iMovie, they tackled digital music. For those with a TV handy, CNBC is about to discuss the meeting we are following. Steve says that 320 million blank CDs were sold last year. Adults were going to their teenagers to ask how to do this whole MP3/CD-R thing according to Steve.
[4:13 PM CST] Steve is stepping us through the desktop movie concept. Apple is the only company in the industry that is vertically integrated. They control the hardware and the software unlike any other company on the planet.
[4:10 PM CST] Steve is cataloging the things that one can do with a PC. Big screen means better interface, you can burn CDs, no matter how you want to connect to the Internet, the PC can do it. The PC is not in decline in other words. Apple first thought of this concept when they invented iMovie. That coupled with digital cameras supposedly first sparked the Digital Hub concept. We find this difficult to believe. It is far more likely that the desire to have a digital hub sparked iMovie. Also, Steve says he teared up when he first saw iMovie because of its potential. We agree with that potential.
[4:08 PM CST] Steve is talking about the golden ages of computing: the age of productivity, the age of the Internet, and how we are on the verge of the next age, the age of digital convergence. This includes digital devices, cameras, MP3 players, etc. The Mac can become the Digital Hub for these emerging lifestyles.
[4:04 PM CST] Going over the G4 which appears to be back up and running courtesy of Wayne whom Steve just introduced.
[4:05 PM CST] Back to explaining Mac OS X. He is talking about the three levels of X, Carbon, Classic, and Cocoa. Once again, this is straight out of the last keynote. Steve is also discussing the developers working on X versions of apps, and reiterating the time frame for them to release their own apps.
[4:02 PM CST] Steve is discussing Internet Appliances. He says that they are static while the Internet is not static. So when the Internet changes, your appliance can no longer deal with it. The bottom line is that the power and flexibility, coupled with the cheap prices, of PCs (including Macs) make them very desirable. Steve says Apple is working on "tis stuff, you know."
[4:00 PM CST] Back in business. Analyst asked about the Cube. Steve says that it has found a niche and that within that niche it has been successful.
[3:50 PM CST] We have lost sound again. This is the nature of Internet Streaming.
[3:48 PM CST] They are still having problems with their PowerMac G4. Steve asked "How're we doing Wayne? Getting close."
[3:46 PM CST] Steve says they are on track to ship Mac OS X on March 24th. Says that they will be making it the default OS in the summer. So far this is very similar to the MACWORLD SF keynote.
[3:45 PM CST] Problems with their test unit. Steve says that he can't do something (there is no video feed for this) and is asking the guys if they need to reboot. Please note that he is not throwing a temper tantrum. :-)
[3:44 PM CST] Steve is talking about the SuperDrive. "We own movie editing with iMovie 2 and Final Cut Pro.
[3:43 PM CST] Steve is discussing the PowerMac G4 right now. We are losing the stream intermittently, so please bear with us.
[3:42 PM CST] Steve Jobs has begun speaking. Talking about the PowerBook G4. Called it the coolest laptop ever made.