|by Wes George
The WWDC & Apple Handheld: Discounting The Fear
May 22nd, 2000
|The real value (of a stock certificate) is determined at any given time solely, definitely and inexorably by supply and demand.
I was going to write a long diatribe in defense of Apple's stock urging investors to rush right out and buy some more at Friday's low low price of $94 per share. But after spending a couple of hours on the net doing my due diligence, I feel a bit more cautious. Instead, I've chosen to subject you, my poor reader, to a litany of Apple's aches and pains as a necessary step toward the discounting these ailments in the price per share. If you'd rather a happy happy tune visit Dr. Mac.
AAPL's graph sucks. I don't want to ignite a debate on the merits of technical analysis with the quant-heads. Suffice it to say that harried mutual fund money mangers and other market-savvy types use TA as one of the heuristics for deciding where to allocate capital in the equity markets.
Apple's graph has recently completed a classic head and shoulders top on a daily chart indicating that the stock is under distribution, rather than accumulation, by the powers that be. The confirmed H&S top indicates that Apple is in true bear market mode and will continue to test the low end of its trading range with no new highs for months to come. Moreover, as a market leader in the consumer PC hardware space, AAPL's chart can be seen as a proxy for the whole sector. That is to say, as James Cramer recent did, "The market is crummy."
The good TA news is that support at about $87 is strong and could/should/better hold. Apple still has $350 million left in their stock buy back plan and they could use a portion of it to support the stock, in part because Apple gives some new employees stock option packages priced at $89 per share. In this tight labor market, surely Cupertino doesn't want to make recruiting more difficult or demoralize the existing Mac workforce.
On the other hand, the worse possible scenario could see the Nasdaq tanking further in anticipation of a slowing economy due to the Fed's overzealous fear of inflation. Every recession of the 20th century in the US was proceeded by a tight money policy by the Federal Reserve. The Nasdaq hasn't really seen the sort of nightmare of capitulation that signals a true bear market bottom. The really high flying technology "blue-chips" like Cisco and Yahoo are still sorely overvalued by any yardstick. The best buying opportunities are yet to come.
No held hands
Apple's stock chart is so ominous that it's easy to see more downside and difficult to see what could possibly turn this ship around. Especially now that Phil Shiller, Apple's vice president of marketing, has said Apple has no plan to compete in the handheld market. At first glance, this headline really sucks from a shareholder's point of view because handheld Internet devices are the latest buzz on the Street. To announce Apple isn't going to play that game is for the stock to don a cape of negative momentum and create a black hole where conventional wisdom said Apple's future lay.
But, that's the shallow analysis, on a deeper exploration of the details, Apple has a bevy excellent reasons for not diving headfirst into the nascent handheld/whatever market. One great reason could be that Sony has announced a suite of $200 handhelds that leapfrog the Palm Pilot in price and performance levels. It's going to be a struggle to make money as a manufacturer of these devices because margins are likely to fall below the tolerances of most US corporations as the competition swells.
Like the cell-phone business, Internet appliance/handheld makers will find their profits in whatever reoccurring service costs can be tied to owning such a device. No one is really sure whose turf the future wireless network/handheld market really belongs too--it's a hybrid space. Consumer electronics manufacturers want a piece of the action, but so do phone companies and cell phone manufacturers. PC vendors imagine it's theirs to lose. Casio, Hitachi, Lucent, Ericsson, Yahoo, AOL, BeOS and even Ford Motors have angles to play.
What Phil Schiller, Apple's vice president of marketing really said was, "We are focused on the personal computer space, not the handheld space, and that's that, I hate to use these words, but there's nothing going on."
Call me ruinously optimistic, but Schiller may be splitting hairs. He didn't say that Apple has no plans for a new class of hardware, such as an Internet device. He said Apple was NOT going to go head to head with Palm, Sony and eventually with the likes of Nokia, Transmeta and every other behemoth to stake a claim in the handheld goldrush.
As a matter of conversation, Handhelds, as defined by the Palm or Psion, aren't really dedicated Internet devices. The epod is a true Internet device. So is the Modo, a weird little $99 horseshoe crab looking device (due out in July) that will locate restaurants, movies, etc. via a cellular paging network and display the results on a backlit 85-dpi grayscale screen. According to Wired Magazine the Modo is dead simple to use and, "There is no subscription fee--you buy it, it works and that's that. The revenue comes from ad banners and laser-scanable bar codes that afford Modo users special deals at sponsoring retailers. In future versions, the device will send as well as receive data, so Scout (Modo's owners) can harvest fees from reservations and ticketing."
No one can say how the Internet appliance market will evolve. No one knows what concept form of device will fit your palm as well as ergonomically wrap itself around your lifestyle. But there is a killer app out there, just waiting to be invented, financed and brought to market. It's as wild a frontier as the desktop space was in 1982 and the stakes are even bigger. The winners could end up as the 21st century equivalent of today's electric utilities.
The fact that Apple is being cautious here is a good thing. The company is only big enough to safely take one shot at the Internet appliance market--like the iMac, their aim needs to be dead center on target. Being the first to this market is not likely to give a Microsoftian advantage, more likely the first movers will go broke making mistakes, such as Apple did with the Newton or eWorld. Meanwhile, the wizened, battle scarred veteran developers at Apple can create a sustainable IA vision in part based on lessons learned from other's painful experiences.
WWDC: No Bragging Rights
Investor's have now endured two major Apple events where Steve and gang have underwhelmed us with software innovations that may be totally cool to the technically inclined, but as spoiled end users of the world's best consumer platform the rest of us merely expect no less. Wake us up when some hardware is announced.
Meanwhile, the OS X 1.0 shrink-wrap roll out is getting yet another schedule set back, this time to January 2001. I'll buy Apple's explanation. Third party developers need more time to ramp up their products to the new OS. So what? I just paid a hundred bucks for OS 9 last fall--talk about planned obsolescence. Slowing down the OS X roll out to get it as close to right as possible will be seen as a good thing in the long run.
Then there are those who claim many of OS X's bragging rights rightfully belong to others. Ironically, in a spirit reminiscent of Apple's attitude towards Microsoft, BeOS users sneer: "Steve Jobs 'wowed' the Mac faithful at Apple's Worldwide Developers Forum by demonstrating Mac OS X features available on BeOS PR2 back in 1997. Further 'oohs' and 'aahs' were drawn by unveiling crash protection features found in even older versions of BeOS."
Not only are desktop operating systems viewed as a mature over-the-hill market by the digerati, but by now Apple must surely know from bitter personal experience that better OS by itself won't win any wars, although it will may find you love.
Risking it all on RISC
I'm no siliconhead, so I am out of my league when evaluating the merits of RISC architecture as embodied by Motorola's and IBM's G4 compared to Intel's or AMD's CISC-based processors.
However, this much is apparent--the fierce competition between Intel and AMD is pushing the CISC MHz clock rate into the stratosphere, while sleepy Motorola and IBM plod along seemingly in defiance of Gordon Moore's Law. Worst yet, Motorola has become bored with petulant Apple's tiny market share and has increasingly tailored its R&D toward PowerPC processors for embedded control and digital signal processing, i.e. cellphones.
While clock rate is a simplistic and overrated way to compare processing power, it is the one most people imagine they understand. This simple graph shows an unprecedented gap opening in the speed wars.
Thanks to realworldtech.com for the graph.
Note: There are no applications or even bus systems in consumer PCs that can really take advantage of gigahertz clock rates. And Motorola's Altivec technology makes up for most--some say all--of the PowerPC's MHz lag. So the clock speed gap is really more about perception than actual performance today. Nevertheless, the trend looks ominous and uncertainty about the future of the platform's most fundamental hardware component isn't a healthy environment in which to grow the stock price.
All these doubts fly in the face of would-be investors, who by purchasing shares of AAPL are in essence shouldering these risks and concerns for their own. The average investor has a vision horizon that extends about 12 to 18 months out. Apple has implied at MACWORLD in January and again last week at the WWDC that the future contains more of the same, rather than some new innovations, as a response to the rapidly evolving PC market place. (The coming of OS X is probably already anticipated in the stock price.)
Who's to say Apple's leadership is wrong? The company is on track to meet expected rates of growth, and much of the news from WWDC was very positive. Perhaps the current Mac line is perfectly suited for Apple to grow revenues and market share on for the rest of 2000. Apple has often been too far ahead of the adoption curve to turn a profit, witness the Newton.
Once burned, twice shy?
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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.