Apple Warns; Blames Soft Edu, Overall Sales and Disappointing Cube Sales
by MacEdition Staff, 28 September 2000
Apple warned Thursday that fourth quarter earnings will be lower than expected at 30-33 cents a share, significantly lower than the First Call analysts' estimate, reported by TheStreet.com at 45 cents a share.
Amazingly enough, Apple's CFO, Fred Anderson confirmed what many in the Mac community had been saying for quite a while: the Cube isn't selling as well as expected. Mr. Anderson had this to say in Apple's press release:
First, we experienced lower than expected September sales due to a business slowdown in all geographies. Second, our Education sales, which normally peak during September, were lower than expected. And third, our Power Mac G4 Cube is off to a slower than expected start, resulting in revenues below expectations. We are currently re-evaluating our plans going forward, and will provide lower growth targets for next quarter and the next fiscal year when we announce our final results on October 18.
Even in the face of what is going to cause significant turmoil for Apple's stock, Steve Jobs, Apple's CEO, refused to offer any peek into the cone of silence surrounding Apple's product line, saying only "Though this slowdown is disappointing, we have so many wonderful new products and programs in the pipeline – including Mac OS X early next year – and remain positive about our future."
Ok, but why?
There was a slowdown in Apple's sales. That's now a fact. But why would Apple, after recovering quite well in the past two years, slip like this? The simplest answer is likely the most accurate: for the price, Apple's recent product revisions either were not compelling or not available.
In the case of the Cube, Mr. Anderson tells us specifically that sales were disappointing. This seems to validate all the reports that claimed the Cube was too much flash and not enough substance for the price. Predicting the correct mix of features and style is certainly difficult, but Apple sure seems to have missed the boat on this one. Cogent observers predicted that sales of the Cube were likely not meeting internal goals, regardless of anecdotal sales reports, when Apple finally turned loose marketing dollars and blasted the television airwaves with Cube commercials. Given the market that Apple appeared to be tackling with the Cube, that move would not have been necessary were they selling well.
What about the iMacs? Well, Mr. Anderson points out something here, too: that Education sales were lower than expected. Did Apple miss the target buying window for schools with the latest iMac product line refresh? Or were the new models not compelling enough? The answer to this one won't be known until at least October 18 – if even then, depending on how much information is provided during the earnings conference call. However, something about the iMac product line gave the educational channel pause.
Given that Apple is reliant on Motorola for the PPC chips used in many of the machines currently offered, the issue of Moto providing higher clock-speed chips has become an issue. It is an issue Apple addressed by making its G4 product line multi-processor. However, the 500MHz barrier on the G4 also limits the products that Apple can provide on the G3 platform (it wouldn't sound too appealing to have a 700Mhz G3 machine but only a 500Mhz G4). This is a likely contributor to the "compelling" nature of the machines, given that speeds have remained relatively stagnant for over a year. When consumers choose where to spend the (shrinking number of) dollars they have on computing hardware, they typically do not buy year-old hardware.
It certainly appears that Apple has miscalculated how far it could push the Mac-buying market with new colors and an (apparently) over-priced fashion statement in the Cube. Given the recent market reaction to other companies' earnings warnings, Apple investors may pay the price for this miscalulation, at least in the short term.