So Apple Isn’t Applesauce

Leaving Fort Wayne, Indianapolis, to attend
the semiannual Macworld trade show in San Francisco, Brad Bradley had all but given up on
Apple Computer Inc. A faithful Macintosh user for years, the executive with Fort Wayne
Metals was ready to trade in the company’s Macs for Windows machines. "I was really
starting to question Apple’s future viability," says Bradley.

But on the first day of the show, Bradley
changed his mind as he stood listening to Steven P Jobs tell of Apple’s new, improved
future-one that might actually include making money. The Apple Co-Founder and interim CEO
said the company will report a net profit of $ 45 million for the quarter ended December
31, halting a four-quarter, $ 1 billion losing streak. That, plus recent software deals
with Oracle Corp. and Microsoft Corp., persuaded Bradley to stick with his Macs a while
longer: "I feel a lot better about Apple now."

So does Wall Street. Apple’s stock, which
rose in December on rumors of better numbers, jumped 20 percent, to 20, before settling at
18.94. "This doesn’t mean Jobs has saved the company, but it’s definitely great
news," says Analyst Timothy P Bajarin.

Indeed. While Apple sold 133,000 Macs in
November-50,000 more than it expected-overall sales were 26 percent below 1996’s December
quarter, leaving its yearend market share at 3.3 percent half what it was a year ago. And
to stay in the black as it nears the always-dismal March quarter, Apple will have to keep
tightening on costs. This winter could be especially tough as PC rivals start pushing $
700 machines.

Low-end Action
Still, for the first time in years, Apple seems to have a foundation to build on. After
massive layoffs and other cost-cutting, it can turn a profit-even though its new revenue
stream is about 40 percent below what it was when the slide began. There are still
possible asset sales and manufacturing efficiencies, leading some analysts to believe the
company can stay in the black.

But can Apple grow again? Apple’s CFO Fred
Anderson says his long-term goal will be for Apple’s revenue growth to match that of the
PC industry-about 14 percent currently. For the next few quarters, though, Apple will do
well to hold market share, he concedes, "It’ll be another two to three quarters
before we can begin showing growth," he says. That’s because Apple doesn’t yet have
an entry at the low end, where other PC makers have their hottest sales action.

Apple’s growth strategy rests on a series
of new products, including network computers priced below $ 800, that would work on the
Web or corporate intranets. And executives hint the company is working on a sub-$ 1,000 PC
to restart Apple’s efforts in the home PC market. Apple has been absent from this
category, which now accounts for 40 percent of the market.

In the meantime, Jobs is making progress in
chipping away at the chronic depression in Mac-dom. Customers at MacWorld were cheered by
the earnings news and by the announcement of new software coming from Oracle and
Microsoft. The question: Given Apple’s still precarious condition and the competition, can
Jobs keep the crowds cheering every quarter?

PETER BURROWS
in San Mateo, California,
Copyright BusinessWeek
January 19, 1998.

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