Business Week Slams Apple With Erroneous Data & Flat Out Lies

December 10th, 2000 at 2:00 PM - Opinion by Bryan Chaffin

BusinessWeek has not always been known as a friend of Apple, and this week they take the battle one step farther. The magazine has published a shoddy piece of commentary that mixes erroneous conclusions with flat out lies concerning Appleis current sales fiasco. Let us be up front with the fact that Apple is definitely in a pickle, and we are in no way opposed to honest criticism of the company. Certainly we have dished out our own criticisms of the company. However, this particular piece of drivel by Sam Jaffe is just bad. While we tend to avoid point by point (tit for tat) criticisms, we feel it is warranted in this case:

Investors may be asking themselves what Apple can do to revive its fortunes. The likely answer, unfortunately, is that Steve Jobs has no white rabbits left in his hat. Apple appears to be facing a dead end in its business growth, the victim of mismanagement and unmitigated hubris. Apple lovers are a loyal bunch, and theyill probably stick with the company. But Jobsis dream of becoming the worldis biggest computer-maker will likely remain just that -- a dream.

Cries of mismanagement are a matter of opinion, and Mr. Jaffe is certainly entitled to his own such opinions. However, Mr. Jobs has no delusions of taking Apple to be the "worldis biggest computer maker." That has not been in the cards at any point in time as far as we know. In fact, Mr. Jobs has gone on record as saying that the platform wars were over. Where Mr. Jaffe comes up with this is anyoneis guess.

[The Cube] is a beautiful piece of engineering, but no one at Apple thought to ask whether consumers would be prepared to pay $1,800 for a computer that, no matter how aesthetically pleasing, is now technologically run of the mill.

And itis not only the Cube thatis priced wrong. I visited Appleis online store and compared its top-of-the-line G4 to a similar model offered by Gateway on its Web site. The 500-megahertz dual-processor G4 with 256 megabytes of memory costs $7,598 from Apple. A 700-MHz Gateway with a single processor boasting the same memory goes for $2,549.

Heis spot on in regards to Apple not finding out if people wanted to buy The Cube, but Mr. Jaffeis price comparison is beyond ludicrous. He is comparing a G4 with a 22" flat panel monitor to a machine with a CRT. This is an absurd mistake for a mainstream journalist to make. Mr. Jaffe does make some good points about the processor problems Apple faces, and the impact this has on many buyers, but this does not outweigh the pathetic excuse for research we cited above.

Even more frightening for Apple shareholders is that a familiar ghost has come back to haunt the company: inventory mismanagement. In years past, Apple was notorious for either being over- or understocked. Compare that to competitor Dellis legendary inventory management, which usually sees its shelves containing no more than a few days worth of computers.

Things seemed to be looking up the past few quarters thanks to a company plan to reduce inventory to a five-week supply. For a while, it seemed to be working. But another tidbit from Jobsis Dec. 5 announcement was that the company now has close to an 11-week stock of computers gathering dust. To clear that inventory, Apple will have to offer enormous price breaks, hence the $250 million loss.

Once again, we understand that this is a problem for Apple, but the biased Mr. Jaffe fails to mention that the entire PC industry is facing a slowdown and that almost every PC company, including his precious Gateway, has issued similar profit warnings and is facing similar channel inventory gluts. In addition, he is comparing parts inventory on hand by Dell to Appleis retail inventory on hand (in the channel). Indeed, Apple has beaten Dellis much vaunted parts inventory by SEVERAL DAYS for most of the last two years. So not only is he comparing apples to oranges, his is plain wrong!

But probably the greatest brick wall that Apple has hit is its failure to extend the popularity of its computers beyond two relatively small niches: graphic design and education. After all, there are only so many New York-based graphic designers and public schools with budgets big enough to afford expensive Apples.

For years, Appleis base of customers has shown fanatic loyalty. But growth depends on being able to broaden that narrow band of users, which represents only about $6 billion in sales per year. "It appears that the reality for the company is that itis unable to break out of a $6 billion to $7 billion run rate," says Bear Stearns analyst Andrew Neff. In his words, this "implies that its installed base replenishes itself but does not grow." He has a neutral rating on the stock.

Mr. Jaffe seems to ignore or be ignorant of the fact that Apple has brought many new customers in the form of first-time computer owners and Wintel converts to the platform. Certainly he is right that this is among the biggest challenges to the company, but he once again uses incorrect facts to justify his erroneous thoughts.

There are several real issues that Mr. Jaffe has brought up, and some of his criticisms are very valid. However, all in all, this is among the worst pieces of shady journalism that we have seen in a very long time. Mr. Jaffe should be ashamed of himself and embarrassed that his name is attached to this drivel. BusinessWeek too should employ better editors and fact checkers.