|by Wes George
It's A Slow Quarter, But The Apple Trader Says "Buy"
February 8th, 1999
Apple is a very complex company. It'd be much easier to write articles about Dell or Gateway. You could stick with how things are going in the assembly line and a few market forecasts. With Apple, your creative abilities to integrate all the disparate software and hardware initiatives are constantly under siege. This week the Apple news, as usual, is wide and far-flung. So, I'll just start with the obvious and move to the obscure.
First off, as I predicted, AAPL has drifted downward. Apple is a stock still driven by news events in spite of management's near perfect execution for the last four quarters. The fundamentals are great for this year but the five-year chart looks like a train wreck. Wall Street places valuation based on things past. That's why the Internet stocks do so well; they have no past. Apple reeks of history.
How long does it take to get the confidence and respect on Wall Street after years of being a loser? It is happening slowly. A sign of the shift: The Pittsburgh-based Mellon Bank Corp filed an SEC G3 disclosing that it had acquired a 6.47 percent stake in Apple recently. That's almost 9 million shares. A very nice vote of confidence from an old guard institution that believes in making money the old fashion way, via the long-term hold. Two nice things about Apple not yet having much mind share on Wall Street are that you and I as investors are in early and the upside potential is much greater than the downside.
Last week I pointed out that AAPL at 35 dollars was a price too good to resist for savvy investors. That's because 35 bucks is the 200 day moving average and over the past year AAPL has stretched down and touched the 200 day moving average and then rebounded back up three times, each time for more than a forty percent gain. A continued general market slide next week could easily see AAPL near 35.
My advice: buy.
However, just to be even-handed about this, any big drop below 35 would also mean a break in the over all upward trend we've seen since last January. It's hard to imagine why that would occur, short of the market waking up to the ridiculously over valuation that has been placed on so many tech issues (not Apple) and the start of a general pullback. Being bearish in this bull market is like yelling "popcorn" in a crowded theatre. It's irrelevant.
I feel like I let everyone down back in January by not calling the high at 46 dollars. If I hadn't drank that kool-aid at MacWorld, I might have been cogent enough to notice that all the Apple big wigs were instigating a sell off of their personal shares at the high. In fact, Tevanian, Anderson and Mandich alone planned to sell $14 million dollars worth. This is a rather large increase in the normal insider trading activity at Apple. It probably helped trigger the huge drop in price per share we've seen lately as smart investors took the hint and cashed out along with the Apple top dogs. What does it mean?
Some guesses: They wanted to lock in their profits because as the top honchos at Apple they have a clear view of the future and realize that the iMac smash hit which got us to this point will not be easy to replicate in a new product line. There may be some split in opinion with Steve as to how to proceed in the next few years. Some may be just covering their bases with profits. Then, of course, there are always yachts and houses; every big shot needs a couple.
Meanwhile, we are waiting for the January unit sales performance polls for the PC industry due out next week. January's poll is particular significant because it's the defining curve for the rest of the year outside the Christmas season. If Apple can show good numbers here it will mean the Mac is back and the iMac was not just a Christmas season fad. The poll also might give us a hint on how the new modemless G3s are doing. I could just strangle someone over at Apple because of this modem issue, but I'll just shut up for now before I get slapped with a restraining order.
Don't expect insanely great numbers for Apple in January. We're entering the slowest time of year historically for all the PC manufacturers. If we're lucky, some knee jerk analyst may even issue a well timed downgrade of Apple based erroneously on weak January numbers and give us all a good buying opportunity.
Another AAPL price mover might be MacWorld Tokyo, which starts next week. What if Steve shows up with a P1 (the secret new portable) or does a preview of QuickTime 4.0? It would be a nice gesture to the Japanese marketplace, which seems to have permanently been cast into Job's "reality distortion field". They love Apple.
A friend in Japan even sent me an anime pin up iMac/girl cyborg poster; certainly not Apple generated stuff.
Hey, I'm not complaining. What other country in the world has Mac products consistently out selling PCs? The iMac has been the number one best selling computer in Japan with 28.8 percent of the market as recently as January 18. Pundits in Japan are calling this meteoric rise "unprecedented". Not only is the iMac fluctuating between the number 1 and 2 spots in Japan with the perennial numero uno home team NEC, but the iMac is also the least expensive computer in the top 15 best sellers. So much for the image of Apple as an elitist organization with over-priced products. While most PC manufacturers are bleeding in Asia, Apple is surging ahead.
The project called "Max"
Everyone should know that Motorola has delivered on time the new G4 processor.
This silicon is a vast step up from the G3 (PowerPC 750). It's expected to be available in the second quarter. There are some new features on this chip, which you'll be hearing a lot of tech talk about in the near future.
One is the AltiVec Technology. According to Holger Bettag, a guy in the know, "It is impossible to foresee all the things it (AltiVec) will enable. On the desktop, it will definitely spark formerly impossible multimedia applications. It is estimated that "Max" (G4) will be able to simultaneously decode four DVD MPEG-2 movies in software. The availability of this sort of freely programmable processing power will very likely trigger several new audio and video CODECs with unseen compression ratio/quality."
AltiVec does matrix-based mathematics in the hardware to render audio, graphic, 3d and animation with speed unheard of without multiprocessing. Altivec's hardware trick is to add 32 new 128-bit registers. Think of it as an FPU on steroids.
Another is the "MaxBus" which will allow peak throughput three times the volume of the G3. MaxBus also introduces a limited type of parallel processing to the architecture. Now that's high tech!
The bottom line for the AppleTrader is that the G4 will make the Intel line of crap look like fossils. For instance, some time later this year it's going to become impossible for Pentium based notebooks to keep pace with the increasingly powerful G4s. After all, how big of a heat sync can you put in a laptop? Just one more reason to migrate to the Mac platform.
The only problem with the G4 is going to be the perception of the general public who love to compare MHz size. The G4s are going to come with a MHz rating a hundred points lower than the Intel and AMD crapola they're going to have to compete against. As Steve pointed out at MacWorld, the public doesn't want to hear a bunch of mumbo-jumbo tech stuff. All they look at is MHz. Somebody write me and explain why Motorola can't rate these chips at higher speeds.
In other news.
Apple outsources iMac production to the Korean chaebol LG Electronics.
Brilliant move Apple! Out sourcing the iMac means Apple is freeing up resources and personnel for the next insanely great product without any long good-byes to the iMac. The iMac will continue to be a big bread winner for Apple with 2 million units on order from LG Electronics but Apple's brain power will be unencumbered with the dirty little manufacturing details.
I've started to hear rumors about Veronica, Apple's code name for Mac OS 8.6. She will be quite a performer, not just a bug-fix. It should convince all those who wouldn't shell out $100 for OS 8.5 to do that upgrade now before they get left in the dust.
Then there's that pesky consumer portable on which all my hopes are pinned. Rumors are a' flying. It sounds like it's going to be a clam-like little thing with plastics similar to the iMac. They're supposed to be very light, which is a nice contrast to the PowerBook G3 Series, which are made of cast iron. They're going to have the FireWire and be liquid fast. They may be at a store near you sometimes in June.
Then there is going to be the release of QuickTime 4.0 this month. It's supposed to make porting all sorts of third party multimedia codec contraptions to your Mac a seamless process thus encouraging developers to, yes you guessed it, develop.
I finally got around to reading Steve's open letter to all Apple employees on the occasion of Apple's fifteenth anniversary. I almost, but didn't, cry.
I found this part a particularly inspired definition of Apple's niche in the PC market space, "The computer world shows no signs of getting simpler as we enter the coming century. And no other company has yet taken Apple's place as the bridge builder. As we return to our roots and once again begin delivering simpler and better ways to use computers, Apple's future looks both bright and secure. It's been an amazing journey so far, yet we have barely begun."
Out of time, gotta run. Next week, I plan to add my voice to the growing chorus demanding that CompUSA clean up its miserable act.
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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.