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by Wes George



and Trading.

Mmmmmmm...... Good

Trick Or Treat

It’s been a really creepy week for the Apple investor out there. The tech news section is getting so thick it’s hard to keep up with the constant revelations. The Microsoft trial has become a theater of the absurd. Barksdale, Netscape CEO, admitted he played Stalin with Steve Case (AOL’s CEO) who played Roosevelt as they schemed against poor little ol’ Microsoft. Appropriate fun for Halloween, only it wasn’t October when these grown men were playing “Yalta.” Then you had Mark Andreesen’s surreal claim that Netscape would never ever have given away Navigator for free if it hadn’t been for the Microsoft subterfuge of giving away Explorer.

Please, do you know of anyone, anywhere who ever paid for Netscape Navigator? Not to be out done for shear gall, the Orwellian Microsoft counsel confessed the meeting Microsoft had claimed to be “invented and imagined” really did happen but it was a set-up, a sting operation! The DOJ counsel thought they were in the wrong courtroom.

Later, in the Day of the Living Dead category, rumors abound that Gateway is going to resurrect the Amiga on G3 PowerPC silicon and that these boxes will also be able run various Mac OS’s. Rumor has it that this has caused quite a fright over at Apple. I’m not sure why, sounds like a failed Dr. Moreau experiment. Interested parties tell me that it raises the ugly specter of unauthorized clones, a dragon, authorized or not, that St. Jobs made quick work of last year.

Perhaps partly as pay back Apple announced on Wednesday an “i:)ware” consumer financing program modeled on Your:)Ware the successful Gateway campaign to trick cash poor consumers into buying a lame cow for a PC. With the Apple version anyone with $29.95 a month can now afford an iMac, instead of a cow, and while you’re at Best Buy financing that iMac why don’t you get a washer-dryer combo too? Think of all the quarters you’ll save.

The Big News this week is that Fortune Magazines put our hero, Steve Jobs, on the cover of the November issue and the big geek forgot to shave for the photo shoot. Mom won’t be pleased. Inside the glossy covers, Fortune devotes a lot of hand wringing to the Big Question Mark that hovers above Apple’s long term future and they have an insightful chat with Steve too. But, they leave the Big Question Mark hanging. This should be a good publicity thing, right?

Maybe. Yet, strangely enough on Tuesday, as the rather positive Fortune articles hit the net, Apple’s stock plunged over two points late in the day on light volume. Could it be Fred Anderson’s frank admission that Apple would be “dead” with out Microsoft’s continued support of MS Office for the Mac that spooked the spookable? Or did the dirt that the Fortune article dredged up about Apple’s gloomy financial past scare the newbie investors out there. Macabre statistics like, “ in 1994, 18% of U.S. households that owned a computer had Macs; by this July the figure had plunged to 6%. That translates to just 2.7 million U.S. homes with Macs.”

Makes me want to cry in my beer to sadly reminisce about the Apple “spiral of death” under Gil Amelio. Fortunately, that past is history and the future is what investors must keep an eye on.

As a rule of thumb, it is said by wizen old stock brokers that the market usually looks ahead about 18 months in anticipating a stock’s value. The same old schoolers think that PE ratios should not be more than 20 to 25 or the stock is overvalued. Of course, in today’s high tech world 18 months is a product’s total life cycle and PE values seem to be irrelevant when mere beige box assemblers like Dell can have a PE of 69. Gateway has a PE of 60. Hell, high flying billion buck IPO’s like @Home and Earthlink don’t even have PE ratios since their financial booster rockets are still in the burn, baby, burn stage. Gleefully torching their optimistic investors’ cash at flame rates never seen before in the history of Wall Street. All the while promising profits the size of Saturn’s rings somewhere out past the 18 month marker. Is this Wall Street or Vegas?

Some kids will tell you we’re in a New Economy with New Rules for the Information Age. Yeah, well I already lost a bet on the dawning Age of Aquarius, so I’ll just hang ten with the old timers. Moral: don’t get your investment advice from the likes of a Wired Magazine.

By the Old Time Wall Street logic, Apple’s healthy PE ratio of 17 combined with it’s stellar quarter over quarter growth means it’s undervalued by a long shot. Especially in light of the New Economy size PE ratios the PC box makers now have. Who, by the way, are in the midst of an ongoing price war that will eventually eat their profit margins and then collapse their stock price. Someday. Maybe 18 months out.

Meanwhile, back at the ranch, PC sales are brisk, yet iMac sales are brisker. PC sales in Europe are growing at a fat 22 %, Mac sales in the same region are doing nicely at 29%. An amazing 29% of all iMac purchases are by people who have never own a computer and so on.

All right already, Apple stats are all insanely great this quarter and next quarter and the next that it’s downright boring to go over them again. The Mac is back, o.k. now what? What’s going to sustain growth in 18 months? How does Apple plan to grow it’s market share past the sonic boom of the iMac. No one is talking. But there are some clues....

Steve tried to buy the PalmPilot from 3Com last year. It didn’t work. 3Com’s PDA (a term coined ironically at Apple to describe the now discontinued Newton) is an astounding business success for the company. The buzz on the street is that smart devices a.k.a eMate, PalmPilot, et al may eventually become as big a market as PC’s. People don’t want to be chained to a desktop. The freedom of cell phones has awakened the wanderlust of the average fluorescently tanned office worker. Now, if only he/she could take their network connection and data out of the building with them they would be truly free. Combined with the SUV this trend may be an environmental Armageddon in the making. Imagine yuppies pouring out of the cities and into the country side like a locust invasion consuming all, yet constantly in touch with the home office. But, I digress. The point is look for Apple to come out with some sort of eMate with antenna, handheld cell modem thingamabob next year to capitalize on this growing trend.

Another clue: Steve said in the Forbe’s article that he wants Apple to become the Sony of the computer consumer market space and the iMac gives Apple a leg up on that goal. Beyond that pronouncement was a lot of fuzzy feel good stuff like how the home computer market has massive room for growth and the PC box makers are focused more on hardboiled business and not on the ease-of-use issues that home consumers want. Steve doesn’t really say how Apple will become a Sony, probably, in part, because he doesn’t really know. The universe is yet unfolding before our very eyes.

It seems like Jobs is saving the next big home run hit to follow up the iMac for later and is concentrating on the dull little business things that secure steady company growth. Things such as being a really cooperative partner with software developers, an innovation Apple hasn’t tried in the past. Apple has cut inventory in the product channel to historic new lows, another very healthy business move. Also, Steve trimmed Apple’s focus, killing off a dozen corporate design/build teams that ran in all directions of the technological compass without a central theme.

That’s good. Stay Focused. Apple has been legendarily long on genius and short on common horse sense. The iMac proves the fires of the innovation are still hot at Apple and the Fortune interview with Steve suggest that he has matured into wise and stable leader. Just the type guy you might want at the helm of your multi-billion dollar enterprise. Now things are going to get really interesting. Stay tuned.

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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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