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by Wes George



and Trading.

Mmmmmmm...... Good

FUD: The Danger In Apple's Silence
March 15th, 1999

FUD: Apple-Style

The iMac is a double-edged sword for Apple's stock price: good because the iMac has saved Apple from atrophy and ultimately extinction and bad because the iMac has saved Apple from atrophy and ultimately extinction. Who wants a piece of a one-product company especially in the PC market with product cycles measured in days?

Sure, Apple isn't really a one-product company, but we're talking about general perceptions here. Apple needs to come out with more than one insanely great product, like the iMac, per year. Investors are still uncertain that Cupertino can pull another iMac-like success out it its hat.

Recently, it's kind of like Apple is running it's own FUD campaign, (Fear, Uncertainty, and Doubt), against itself by leaving us all in the dark with our own fertile imaginations. After all, it hasn't been that long since Apple was a source of endless nightmares. We need guidance and we want to have our hands held.

What if the new consumer portable is a flop or gets creamed by an already competitive market? See the last Wired issue to preview the dozen WinCE instruments already on the market. IBM is set to announce the ThinkPad 570, which has some pretty space age features, including the ability to "transform" into a smaller portable. There is a rising tide of fear about the P1 engendered by Apple's silence.

This lack of news can't last much longer because the numbers for this quarter (fiscal 2nd) are coming out on April 14th. Also stay tuned for the annual shareholder's meeting in Cupertino on March 24th. Btw, I would just love to hear some inside reports from anyone going to the meeting. On Tuesday Steve is going to introduce OSX with a speech about "Apple's operating system strategy."

The Numbers

The expectation is that Apple will easily beat last year's low eps of .38 by a long shot. Of course, Wall Street has set bar high. In spite of Fred Anderson's appeal for a more humble evaluation, the eps is up at a dangerously high .57. To satisfy expectations, Apple will have to have numbers radically out of line with the slump the rest of the PC industry is in.

The analysts are sticking by their high numbers for Apple while graciously lowering the expectations for other PC manufacturers. In fact, a more cynical columnist than myself might suggest that Apple is being set up for a downside surprise. Apple is currently the 5th most popular corporation to short on the NASDAQ.

A downside earnings announcement that tanks AAPL into the upper 20's would be a cruel surprise indeed, yet it's possible. What irony for a company that has increased retail unit sales over 176% since last January! According to Intelect ASW, "Apple posted the largest sales increase (of PC vendors) on a year-over-year basis, which made it the sixth-largest computer vendor." PC sales are up only 24% during the same period, in comparison.

The Average Investor

As an Apple investor who follows this stock close enough to bother with reading this column it's easy to forget the vast number of investors out there don't really have a good grip on the facts surrounding Apple's business. For instance, I also invest in Nortel and Lucent but don't ask me to describe the details of their technologies or R&D. I just like the "smell" of these two companies.

To your average investor, Apple has a kind of skank odor this quarter. What does the man on the street know? He knows that iMacs are selling big and this is floating the whole company. He also knows that every couple of weeks since November of last year some analysts with little insight into the mind of consumers steps up to announce that the iMac fad is fading (á la, the anti-Mac moron Aaron Goldberg). So far they have all been false alarms but perhaps subtly related to the massive short interest Apple seems to attract from Wall Street.

The fading fad myth is related to the false charges of channel stuffing earlier in the quarter. These charges were never clearly resolved. The average investor is just left with the lingering scent of doubt.

The average investor also knows that CompUSA couldn't sell ice in Belize and that Best Buy hasn't sold enough iMacs to show up on radar. So the perception is that the Macs aren't moving in the retail outlets, as they should. The weak forecasts from the PC industry as a whole hurt too. After all, Apple makes computers, no? More stinking doubts.

This weakness is re-enforced by the fact that Apple keeps lowering the price on their PowerBook G3 series, suggesting that they aren't moving well. Apple has such high margins (highest in the industry) that price cuts don't hurt too badly. Some mail order houses still have RevB iMacs although Apple claimed to have inventory levels that should have been depleted weeks ago. So maybe the channel stuffing stories were true?

Analysts also spent inordinate effort beating their drums over the problems associated with a five-color inventory line and the difficulties involved in managing a multi-colored stock. In the world of beige PCs, colors are scary! The jury's not yet in on how well Apple has negotiated this possible pitfall. Apple is making special production runs at a manufacturing plant in Mexico for just blueberry and grape iMacs.

Finally, the numbers for the new five-flavored iMacs can be made to look weak this quarter just by leaving off the detail that the new iMacs weren't released till a few weeks into the quarter and took longer yet to flow into the channels.

This all adds up to a general wait and see attitude on the part of many unadventurous investors. Apple has yet to provide solid evidence of long-term growth of the kind sustained by many of Apple's PC rivals.

Borgs Who Diss

Then there are the people who just slag on Apple because they can. Here's a quote from a review of the iMac at,26,0-102-257743-685565,00.html?

"…If you need to do simple things such as printing, saving files to disk, and upgrading your machine, you'll be sorely disappointed in the iMac, regardless of how cool it looks." The nameless author of this drivel goes on to compare the iMac unfavorably to the TigerDirect K-Series. It's the sad state of the world today that Apple is the minority platform and will always get kicked around by the PC-dominate mainstream.

Here's Aaron's Goldberg's belated apology for single-handedly starting the false rumor of failing iMac sales back in November, "OK, when I started to really look closely at what the fourth quarter iMac sales looked like, I expected some drop off. Mostly because the initial rush of Mac bigots had subsided, and the end of the Q4 selling season spelled the peak of Apple's success in the retail market. After all, it seemed that the limited market of those individuals wanting to go "non-standard" would be exhausted and that our PC attention (which spans about two months) would turn to other hot products."

The first thing I noticed is the meaningless, nonetheless insulting, term "Mac bigot". (Ever heard of a Ford bigot, how about an Amana toaster-oven bigot ?) The second thing is that this PC borg really believes that given the choice American consumers will choose conformity rather than seek to express their own personal identities. The dude disqualifies himself on both counts. The freudian "Mac bigot" comment reveals his own inner malice (perhaps envy) towards Apple's newfound success. His comment on "non-standard" individuals sounds like he longs for the good old days of Soviet bicycle factories. Hey, maybe this guy could get a job with CompUSA!

Aaron's latest brilliant insight is that the iMac's continued success this quarter is due to the release of the Pentium III chip. Go figure.

Ironically, Apple's position as the only viable alternative to the Wintel platform is also what guarantees (barring any major errors on the part of Cupertino) Apple's continued existence. The universal blandness of PCs in a purely natural (fractal) way mandates the existence of an archetypal symmetrically opposite nemesis. A refuge, a safe haven, an escape for the outcasts, the disenfranchised, the free thinkers and spirits, the hermits, visionaries and artists fleeing PC hordes. If Apple didn't exist, it would have to be invented.

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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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