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Did the analysts hear the music Apple played?

By Nobody Special,, 2 February 2001

Long-time Mac watchers have always been fascinated with the choice of music Apple uses as a prelude to each keynote event. While the financial analysts who chose to come out to Wednesday’s meeting in Cupertino may not have been soothed by sound before the main event started, they could have been forgiven if they heard the strains of Bobby McFerrin’s only Top 40 hit echoing throughout the four-hour chat with Apple’s key executives.

“Don’t Worry, Be Happy” was pretty much the message Apple wanted to get across, and they labored hard to make sure that message was received. Whether the Street buys that story depends largely on which analyst you talk to. But all things considered, there’s no apparent reason to believe anybody got a snow job from a corporation hell-bent for the great beyond.

Since last October, when Apple announced its first earnings shortfall, red flags have been raised in regards to the company’s future. Those concerns were reflected in a crashing stock price, and a general pummelling in the market and the trade press not seen since the darkest days of the company’s history.

As it turned out, Apple was not the only computer company which got a lump of coal in its Christmas stocking. But its battered stock price hasn’t recovered to the same extent as its competitors and is still trading at numbers which closer reflect its $4 billion cash hoard rather than its future prospects. To put this in a historical perspective, the Street has always put Apple on a shorter leash than any of the Wintel boxmakers. It’s the price you pay for being the renegade of the computer trade.

While much of what was provided to the analysts amounted to a replay of Macworld San Francisco. Apple’s Chief Financial Officer, Fred Anderson, provided the meat and potatoes the Street-savvy crowd really came to hear. He outlined budget scenarios indicating Apple was profitable with a revenue stream of $6 billion per year and reminded the assembled gathering that while the company’s fourth quarter was a disaster, it was still profitable for the year 2000. One might also remember that $6 billion is one-half the company’s high-water revenue mark of $12 billion reached in 1994, the year which preceded the sea of red ink which didn’t subside until Steve Jobs retook the helm of the “beleaguered” company in mid-1997.

Other key messages Anderson sent across were that Apple had no plans to reduce its workforce, its educational sales were rebounding, the company’s inventory overhang in the channel was reduced by 300,000 units and even with the disaster of December, Apple’s unit sales increased 32 percent during the last fiscal year.

The hard numbers didn’t stop there. Anderson also told the analysts Apple planned to return to 25-percent margins on its products, and that Apple was well and truly focused on providing compelling applications for its offerings to set it apart from the madding crowd of discount boxmakers. In plain English, rebatemania ends once the currently discounted machines are gone from the sales floor.

The upshot of Anderson’s presentation was that Apple, despite one bad quarter, has its turnaround already well underway, and is ahead of the curve in respect to the rest of the personal computer industry. Apple feels it has a head start on the Wintel crowd toward the flight to quality, a natural progression in a market where sales volumes decline and where your typical buyer is a more educated consumer. There’s nothing like the experience of buying a low-end computer to teach someone about the value of paying a bit more for something higher up the food chain.

While Anderson’s brief comments were left to later in the day, it was up to CEO Steve Jobs and Vice President of Worldwide Product Marketing Phil Schiller to lay the groundwork of convincing the assembled gathering that Apple’s current lineup of products are too cool for buyers to resist, and that the company’s vision of the future is valid. While both extolled the competitive advantages of the current product lineup, one can’t help but wonder how much of that message was undermined by the technical problems which plagued Mr. Jobs’ lead-off presentation. All one can say for sure is that some poor tech named Wayne probably went through the worst day of his life on Wednesday.

Sadly, while both men glowed over the desirability of the new titanium PowerBook and the new G4 lineup, they failed to provide hard numbers in terms of booked orders and presold units. Those numbers, which I’m sure are readily available, would have sent the message that Apple’s professional desktop users were indeed stepping up to the plate and validating the company’s vision of the future. While Apple undoubtedly delivered the desktop video bomb with its 733MHz G4 tower, and the new G4 PowerBooks are simply the best portables that money can buy, it would have been reassuring to see hard numbers that the vision was living up to the hype.

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