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ATPM 3.04
April 1997




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by H.M. Fog,

April Showers

Most of us have read the news. Once again Apple Computer is the subject of takeover speculation. Similar to the way many of us might talk about our favorite "dream team" of an actor and actress in a fantasy Hollywood movie, discussion of who would be best matched to run Apple Computer has become a popular pastime for Mac enthusiasts and industry watchers.

Whether the persons mentioned are Oracle Corp.'s Larry Ellison, Apple co-founder Steve Jobs, current chairman Gilbert Amelio or other computer industry luminary, everyone seems to have an opinion as to who would be best suited to restore Apple Computer to its former glory. No matter the person's view on which person should head the company, everyone seems to agree that the multi-billion dollar global franchise that manufacturers the Mac can, like the legendary Phoenix, will rise again from its own ashes.

Apple Computer, once the darling of Wall Street, has become a company that many people love to hate. It's also a company whose customer loyalty is as well known as its products. Mac users don't give up. It's one of the reasons so many people are captivated by the company. It may also be a reason so many people dislike Apple. Mac users are a stubborn lot!

No wonder there is so much talk about Apple. Who wouldn't want to run a company that has millions of loyal consumers? Whether the speculation centers on Apple remaining an independent company or a significant division of a larger company, very few people talk about the demise of the Macintosh or the Macintosh technology. In many ways the company is both a paragon and a paradox.

The Macintosh technology and the ease-of use of Macintosh computers have established Apple as a paragon of the personal computer industry. The company's problems and its seeming inability to easily determine precisely what Apple Computer should do, makes the company a paradox.

One of Apple's recurring problems is determining whether it is a software company that also makes computer hardware or a computer hardware company that makes easy-to-use software. This ongoing debate within Apple's corporate walls has probably caused more turmoil over the years than any other issue because it establishes the company's direction and goals.

As of this writing Saudi Arabia's Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud has announced that he owns more than 5% of the outstanding stock of Apple Computer. He has also publicly stated that he believes the company has significant potential and that it offers investors a unique opportunity for financial gain. On the other hand, there seems to be pool of news writers who have taken a decidedly different view of things. Anyone who has read the "news" knows the patterned story:

[wideline graphic]

Typical News Report About Apple

April 21, 1997 - Apple Computer, the financially troubled computer company that is struggling to wiggle itself free from beneath a mountain of financial red ink and a cavalcade of management missteps, has announced another series of desperate actions to try and return itself to profitability. This is the second round of drastic restructurings in the past twelve months under Chief Executive Gilbert Amelio, who is reportedly feeling heat from shareholders and customers about the lack of Apple's progress in meeting its product release dates and financial goals.

In totally unrelated news, Apple Computer has announced the release of the world's fastest laptop and among the world's fastest desktop computers. It has also been reported that the market for Mac OS computers (computers that don't run Windows) has increased significantly in the past several months. In addition, the company has stated that it's on schedule for the release of the major upgrade to the Mac OS (code named "Rhapsody" ) set for the summer of 1998. The new computers combined with Apple's easy-to-use operating system may appeal to a broad range of buyers.

However, according to Sheldon Wellington, III of the investment house of Whither, Flynch and Blarney, "Although it does appear that Apple Computer has superior products that are easier for people to use,we have serious reservations about the company's financial condition and its ability to continue to compete in a market dominated by better capitalized companies. Even though the Mac OS dominates the market for Web authoring and other growth markets, we will be very cautious about Apple Computer until it quadruples its current market share and show what we think are real signs of market growth."

[wideline graphic]

In other words, the issue here isn't necessarily truth, it's perception. To many, perception means momentum and momentum means money. It used to be said years ago that no one was ever fired for buying products made by IBM. Along came Apple. I've felt for a long time that people don't like to look stupid much more than they mind being wrong. Apple gained their market share for Macintosh because, to a lot of people, it seemed silly to use something else. For the first time in a generation people questioned buying from IBM.

Several years ago Apple had a promising technology and a really cool product in development called the Newton. It was heavily touted by John Sculley, Apple's chairman at that time. In my view, it was released to the public much too quickly. At first, It didn't work as well as people thought it should and a globally syndicated cartoonist lampooned it. Apple's prestige and reputation were badly tarnished. This was, by no means, the sole cause of Apple's problems, but I do believe it was a turning point in public perception about the company. Again, the issue isn't necessarily truth, but perception. Today, the Newton technology represents a promising path to increased product sales for Apple Computer. The technology itself isn't the problem; instead, it was the timing of the product release.

The theme for this month's issue is "April showers" and for good reason. Mac enthusiasts have "weathered" many, many trials over the past few years. The company's misfortunes and seemingly erratic approach to the market place have been patiently tolerated by Mac enthusiasts and many software developers. Fortunately, the Macintosh is loved by millions of users, including many talented professionals and select industry leaders.

The good news is that more people are taking notice that Apple Computer's stock price is very low compared to its historical performance over the past many years. Wealthy investors, such as Prince Alwaleed, have purchased large blocks of shares in the the company in response. These well-publicized acquisitions will help change the public's perception of Apple's financial future. Whether the stock is acquired because of rumored takeover speculation or based strictly on the company's fundamentals, the renewed interest should create more buyer enthusiasm. When a "turnaround" stock such as Apple begins to show activity, people take notice.

One concern a potential buyer might have about Apple Computer is, "Who would be best suited to run the company?" This isn't just a question of personnel. It's also a question of timing. Should that potential buyer decide it best to replace the current management, they would have to move quickly to avoid disrupting the company's existing recovery. It would also mean that a viable corporate plan would have to be in place prior to the acquisition. This can be difficult if the takeover is "hostile" (or, not desired by current management). This may be one reason that a potential buyer would want to have a new management team and a plan of action waiting in the wings at the time that a takeover offer is made. Avoiding disruption of recovery is also one reason many people would like Apple's current chairman, Gilbert Amelio, to have more time at the company's helm. He charted a new course for Apple and many people think the company's performance has begun to "set sail."

There are very few Mac enthusiasts without strong opinions about who would be best suited to run the company and exactly what course the company should take to return to long-term profitability. As a matter-of-fact, Mac users seem to be as opinionated on this issue as they are loyal to the Mac OS! No matter who leads Apple, the perception of the company's products in the enterprise or business markets must be changed. For example, WebObjects, acquired by Apple in the NeXT Software purchase, is one example of a much needed and highly popular product for the enterprise market. Apple needs to make the most of this opportunity by supporting WebObjects and working to extend Apple's presence in this important market.

Apple's recent release of Power Macintoshes that come bundled with a 166 MHz Pentium processor (targeted especially at individuals and small businesses who must have access to both platforms) marks a new approach in Apple's history. For many years Apple's hardware had lagged the competition in terms of performance. The benefits of the easy-to-use operating system more than made up for slower processor performance. However, when ease-of-use differences between Mac OS and its largest competitor became less "graphic," the Mac's slower performance became more of an issue for buyers.

Introducing the PowerPC significantly changed the performance ratios of Mac vs. Wintel personal computers. The 604e micro-processor has given the Mac OS market a performance edge in head-to-head comparisons with current Wintel products. The decision to bundle Pentium processors into a new line of Macintosh machines allows Apple to claim the crown for personal computer performance. It also deflates any remaining arguments about problems with software or platform incompatibility. That's the truth. Now it's Apple's job to change the perception.

As Mac enthusiasts, we can do our part to change the perception of Apple Computer simply by continuing to talk about the Mac's advantages and continuing to recommend the Macintosh platform to friends, family and co-workers.

Apple Computer is truly a global franchise with millions of loyal customers. Whether the company continues as an independent organization or is merged with another technology leader is not the primary issue. No matter the organization's structure, the Mac OS market will continue to grow, change and advance.

Our "April Showers" will bring May flowers.

[apple graphic] © 1997 H.M. Fog, H.M. Fog is a west coast computer consultant who sometimes writes articles for ATPM.

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