ra_robert@gsbacd.uchicago.edu (01/30/89)
I read in yesterday's New York Times that Apple would experience an unexpected
drop in earnings in the current quarter. "Apple said the decline would last
only one quarter, but the announcement sent Apple's stock into convulsions."
According to John Sculley, the decline in profits is due to the fact that Apple
had to purchase DRAMs at a high price, and will have to use these higher-priced
chips in current machines, although DRAM prices have fallen. But one other
reason analysts feel might account for some of the profit decline is that
Apple's much-maligned price increases did in fact cut into sales of the
high-end models. As we all know, Apple has recently lowered prices on those
models. Apple says it will also undergo some cost-cutting, such as a slow-down
in hiring and a reduction in "non-essential" R&D. In any case, the drop
is apparently for one quarter only.
I know that many of the people at Apple must get tired of people complaining
about every feature that the current incarnation of the Macintosh lacks, and I
too would not like to be second-guessed at every turn. But I think that those
people at Apple who read the net should bear in mind that some of this
criticism is indeed constructive and relevant -- the price increase/demand
drop problem being a case in point. By no means is the all of the
criticism seen on the net constructive and relevant, but some of it is.
In that light, I'd like to make two suggestions, neither of them particularly
new or original, but suggestions I feel are important nonetheless:
First, that Apple not sacrifice long-term market position for short term
shareholder satisfaction. While increasing earnings-per-share over the short
run -- by raising prices or cutting back on R&D -- may make the company look
good to investors and investment analysts, it may hurt the firm in the future.
This is not to say that investor relations are not important, but I think it is
far more important to increase market share against competitors such as OS/2's
PM and the Unix-boxes. One such method would be to make Apple the company with
the greatest "bang for the buck", and offer very powerful machines at
reasonable prices. I think the SE/30 is a good step on this road, but Apple
can do more. Much of the hoopla over Mr. Job's new machine is due to fact that
it's relatively inexpensive (at least for those who can buy it): if he had
offered it at $10,000 +, it is unlikely that such great enthusiasm would have
been generated. Apple needs to do the same.
Second, Apple needs to remember that individuals are important. Apple's
committment to the individual has always been one of the things which -- at
least in my mind -- has set Apple apart from other computer companies in its
corporate philosophy. Apple should not only remember the individual because
it's the proper thing to do, but also because it's good for the company:
although much of Apple's current success in the corporate world can be traced
to astute marketing and good advertising, it is the individual enthusiast who
often as not has introduced Macintosh to a firm and wins adherents there. Apple
owes much of its success to the good-will and "evangelism" of these individual
Macintosh owners. While the corporate market is most important to Apple's
future, it would be unwise to ignore the individual user, and Apple would do
well to foster the impression that that user has not been forgotten in the rush
to expand into the business world.
I come not to bury Apple, but to praise it. I am a big Macintosh fan: I
program it, I evangelize it, and I own one. And the Macintosh is making huge
inroads into new areas: here at the Grad. School of Business, for instance,
we've gone in 2 years from a _strict_ all-PC environment to one where the
Macintosh is becoming the computer of choice. The Mac was also recently
selected as the official computer of the Peace Corps, both because of its
interface and because of Apple's corporate philosophy. But it would be nice if
Apple not only makes the ultimate research computer (here's hoping! :->), but
also makes it possible for the average home user to get a Mac with hard disk,
and not have to turn to IBM because of the huge price differential. I'm an
M.B.A., and I know the value of the bottom line, but sometimes you gotta look
towards the horizon.
Robert
------
ra_robert@gsbacd.uchicago.edu
------
generic disclaimer: all my opinions are mine