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by Wes George



and Trading.

Mmmmmmm...... Good

Hey, eMachines --> Pull My Finger
March 27th, 2000 

I've paid my dues
Time after time
I've done my sentence
But committed no crime
And bad mistakes
I've made a few
I've had my share of sand kicked in my face
But I've come through
We are the champions - my friends
And we'll keep on fighting - till the end -

We are the champions
We are the champions
No time for losers
Cause we are the champions of the world


Gosh, what an incredible time to be an Apple shareholder. The stock has gone parabolic. Last March, the whole PC industry was in a funk and Apple was languishing at 35 dollars a share. Analysts were predicting the end to the glory days of the PC industry, and they were right. In the face of deadly cheap Asian competition such as those borderline criminals at eMachines, analysts forecast falling profits and slowing growth for the entire industry. Things have only gotten worse since for the slothful Wintel PC vendors, as handhelds, wearables and a flood of wired and wireless Internet devices threaten to permanently derail the aging beige box revolution.

Apple, once seen as the weak sister, was expected to wilt right along with the rest of the PC manufacturers. However, the smart money, able to distinguish between innovation and crapola (read: Mac and Wintel), bet that the el cheapo invasion would have little effect on the smaller but higher margin market for quality PC products.

Today the table has turned, Apple is the dominant PC powerhouse - the undisputed market leader in quality, ease of use, innovative design and savvy marketing. Dell, Compaq and Gateway weakly ape Apple as they struggle to secure their uncertain futures and maintain their overvalued stock prices. In the last year, Apple's stock price has more than quadrupled while Compaq's has actually declined. Dell's is up a measly buck or two, and lucky Gateway has so far defied the trend by almost doubling its stock price. Even though AAPL has soared like an eagle, Apple's price-to-earnings ratio is still more value laden than the above-mentioned dogs.

If I sound like I'm gloating, I am. In my decade long love affair with the Macintosh, I've endured nothing but wave after wave of PC borg contempt for what we all know is a superior platform. Now the word is out. Even Gateway, Dell, Compaq and the Korean gangsters at Daewoo have admitted by their design decisions that Macs are the best. It's payback time!

I pass gas in the general direction of these mindless PC borgs.

I pity Compaq for naming their legacy-free, floppy-less, monstrosity iPaq - as if the best they could hope is for this design nightmare to pay homage to the greater glory of iMac. It's as if Compaq hopelessly announced in a press release, "We are intellectually bankrupt. We have not a single byte to add to the advancement of PC design. Please take a tax loss on CPQ and buy AAPL". Of course, Compaq's troubles are worse than simple dimwittedness. The behemoth is headquartered in Houston, Texas, a God-forsaken swamp of a city, which recently beat out Los Angeles for the worst air pollution in the US. You can imagine the price Compaq must pay to bamboozle talent to join their steamy Borg hive.

I laugh at Dell's lame attempt to follow Apple's giant strides with their iDell (webpc), the world's first PC with a Freudian slip built right into the hardware: their ugly purple, stump-shaped iMac emulation has a big button smack up front that instantly connects the user to Dell tech support! What a joke! They deem tech support so unavoidably necessary that it's hardwired right into the product! (It's a "feature.") The first time I saw it I laughed so hard I cried. (Digression: As a citizen of Austin, Texas, Dell's home citadel, I have known dozens of Dell employees. They universally claim the company is a horrible place to work, and they're treated like dogs, but the money is good. I smell a brain drain going on, especially in this tight labor market where employees don't need to put up with evil masters.)

Gateway also has an insipid, iMac-inspired, Wintel profit margin crusher too and it's not selling well - but it's so forgettable, I forgot about it.

Then there is that party spoiler eMachines Inc., founded by Daewoo, a financially troubled Korean chaebol, an organization that would be highly illegal under US anti-trust laws. Essentially, Daewoo is a giant trust run by an elite and secretive group of Korean gangsters, a throwback to the violent robber baron days of the 19th century - but without the innovation. Daewoo's gang strives to fix prices in a dozen interrelated industries ranging from automobiles to electronics to computers; nevertheless they are on the verge of a multi-billion dollar bankruptcy. Through their extreme cronyism and opaque, often illegal, accounting practices, they shoulder much of the blame for the corrupt funk the Korean economy is struggling to rise above.

Daewoo exists in the US through well-scrubbed subsidiaries, staffed by American pawns, which can technically pass through loopholes in US anti-trust laws to import their brutal urge to profit by the most unethical of means. That's why eMachines was created. Daewoo's master plan is nothing short of destroying the US PC vendors by fostering a destructive price war in which the only winners can be companies willing to accept profit margins far below what they are today in the PC industry.

In countries like China and Korea, shareholders have few rights, while monopoly power and full employment to quell civil unrest is more highly valued than corporate profits. It's hardly surprising that eMachines's IPO on Friday was a flop. The company is hemorrhaging money at a huge rate, but they'll never go bankrupt as long as Daewoo keeps pumping money into their scheme. Meanwhile, Gateway, Dell and Compaq will continue to see declining profit margins as the race to price out competitors gets desperate. eMachines may well be prepared to sell PCs at a loss until they drive the US manufacturers off the field! Of course, once the competition is dead, the profit margins for these hired guns should improve substantially.

Apple has successfully risen above the fray by refusing to play the el cheapo game. You get what you pay for. There is always going to be a huge market for quality. If there wasn't, Daewoo's automobiles, another unprofitable undertaking for the chaebol, would have already hurt BMW and Ford - but they haven't. Unfortunately, the US Wintel PC manufacturers, unlike US automotive industry, have little value added to distinguish them from Daewoo's eMachines scheme.

Fortunately, for Apple shareholders and Mac users everywhere, Apple thinks different.

But it's been no bed of roses
No pleasure cruise
I consider it a challenge before the whole human race
And I ain't gonna lose
We are the champions - my friends
And we'll keep on fighting - till the end -
We are the champions
We are the champions
No time for losers
'Cause we are the champions of the world

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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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