|by Wes George
Investing On Faith
June 19th, 2000
This is a frustrating time to be an Apple investor, especially if you recently bought the stock in the triple digits and have had to endure the stagnated stock price of late.
On Wednesday, Apple's stock will begin trading at a split adjusted price, but no one seems very excited. And yes, you can buy the stock right up to the closing bell on Tuesday, or even in after hours trading, to get in on Wednesday's stock split. Of course, it makes no difference whether you buy 100 shares on Tuesday or 200 shares on Wednesday. Don't expect the stock split to give AAPL a boost.
Although it must be obvious why AAPL has lost energy to long time followers of the PC industry, I still get e-mail pining for an explanation. So here goes.
Apple's stock can't get off the ground for just one reason. It's all about expectations and preconceived notions of what Apple should be doing, rather than poor financial news about the company's business. In fact, fundamentally Apple is among the healthiest, faster growing, cash heavy corporations in the US.
Nevertheless, thanks to the media and analysts, investors have their own half-baked ideas about how a PC manufacturer should be grooming their business to ensure both revenue growth and high margins in the future.
Are PCs Dinosaurs?
There is a ton of babble about the death of desktop computing. The hype goes something like this: In a few years we will all be wirelessly connected to the Internet by PDAs, cell-phones, dedicated Internet devices, even wearables combined with global positioning systems or whatever.
Miniaturization will eventually spread processing power anywhere someone can imagine a cybernetic use. Tiny little projection devices will beam the monitor's image to the surface of your eyeball so you can walk down the street logged on, trading currencies through a voice activated user interface anywhere in the Western world. The list of possible applications for computing power and networking extend way beyond that narrow window of access anchored to your desk by a tangle of cables.
There is no doubt the Internet will become ubiquitous. Soon your car will have web access. The digerati in Detroit have plans to leverage automobiles as "information platforms". In fact, by the end of the decade everything from your coffee mug to your dog will have its own IP address. To log off, if possible, will be tantamount to going comatose.
Already in gadget-crazed Japan there is evidence that people access the Internet from cell-phones more often than from desktops. If so, it is a significant milestone for the Information Age, comparable to 1997 when e-mail first surpassed snail mail in volume. Once the killer app of the Internet is liberated from desktop-only access, personal computers will lose their major impetus driving sales and deeper consumer market penetration.
In response to this all-too-obvious view of the road ahead PC vendors like Dell and Gateway are jumping to diversify away from PCs and into Internet service packages and true Web-access only devices. Gateway predicts that 40% of its revenue stream will come from "beyond the box" services by later this year. Compaq has recently brought various handhelds to the market. Dell claims to practically have invented e-business and wants to show you how "e" works for a price. Services adds value to hardware for the consumer and create a steady revenue flow for the company and, it is hoped, a loyal following much like Apple already has.
Apple's Puzzling Silence
Interestingly, Apple, the company that is the undisputed market leader as far as hardware innovation goes, seems to have decided to sit this next round of PC evolution out. At least that's the view from outside Apple's inner circle. Apple has publicly said it wants no part of the handheld, and perhaps the Internet appliance market. Of course, this is all very counter intuitive for investors informed by the latest buzz and it is killing the stock price.
I don't know what Apple's plans are for the future, but I find it oddly in character that Apple's leadership isn't playing to the analysts' conventional wisdom. Unlike Dell, Gateway and HP, Apple is not chasing the obvious public opinion of what the next business cycle in PC manufacturing will bring. Instead Apple has become a living slogan -- they're thinking differently about the future. We don't know exactly what they're thinking in Cupertino, but it sure isn't what the rest of us are thinking.
Apple's puzzling silence is proof positive that there is a third way, a less obvious approach, to the next wave in computing. A path less traveled. We have overlooked something.
Things could easily be very different. If Apple had sucked up to what analysts wanted to hear with a clearly defined Internet appliance strategy, if the public was guided by leaks to anticipate some sort of Web device at MacWorld in July, the stock would be in the $130 range. Apparently, Apple is not taking cues from industry analysts as to what the company's next step should be.
Oh, well, c'est la vie. One basic rule of stock market investing is never to sell when the wind of hype blows the wrong way while the fundamentals point towards increasing strength. The Apple Corporation is beholden to increase its shareholders' long term net worth. From management's perspective, short term stock dips aren't relevant. That's the way it should be, but often isn't for many publicly traded companies who grovel for Wall Street's approval.
Fear, Uncertainty and Doubt
Nevertheless, I worry that Apple has yet to articulate a response to the next stage of evolution in the consumer market. OK, so they got the OS question for the foreseeable future sown up with the brilliant OS X.
I worry that Apple is missing the opportunity of a lifetime by not jumping on the web device bandwagon that seems custom made for the world's premiere consumer PC manufacturer. After all, Internet devices have to work for non-techie people with the reliability and ease-of-use of a TV. That eliminates Windows, NT and Linux as plausible operating systems for consumer Internet devices. Moreover, the Internet is platform neutral, no advantage is gained by having an Internet appliance that utilizes the dominant OS of the day. It simply doesn't matter.
This leveling of the playing field gives Apple an advantage over the PC vendors who are saddled with Intel and Microsoft. Apple's form-follows-function designs are still light years ahead of the competition even after the several years the PC industry has had to respond.
By not utilizing the history-making design-build team that Apple has assembled to create yet more killer hardware designs Apple seems to be missing their biggest opportunity of the decade. Apple could dominate the emerging Internet appliance market in a way that hasn't been possible in the PC market due to Microsoft's monopoly.
But what do I know? I'm just spouting the conventional wisdom of the day available to anyone with access to PC industry news. The real brains at Apple are apparently contemplating some other strategy.
Faith, trust, confidence - whatever you want to call it - Apple has mine.
While it would be difficult to muster the required current buzzgeist to recommend Apple as a buy to a stranger, I do remain positive on the company's long term prospects. After all, this is the company which practically re-invented itself and the PC industry with their insanely great designs since Steve Jobs' return.
I find it impossible to imagine that Apple's engineers aren't far more hip to the near future of hardware than the pundits, including myself. It's even more unimaginable that Steve Jobs has run out of insanely great ideas or ambition. This is one of those rare situations where I am an investor on faith. Faith that Apple's management is world class, faith that unbeknownst to her investors, Apple has a plan. We've seen what this company can achieve and there is no sign that the spark is gone.
I'm sleeping well with my shares of Apple, trusting that the company hasn't lost its visionary edge. Things are just too quiet for that. Apple's recent course is too deviant from the mean projections of the day for something insanely great not to be brewing behind the earless walls in Cupertino.
Perhaps, the Apple leadership will toss us a clue at MACWORLD in July. Until then - buckle your seat beat the ride on Wall Street is going to be rough.
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.