Apple Gets Results

Apple's old-fashioned product values and its unfashionable belief that computing is still cool seem to serve the company just fine in these tough times.


Is Apple Computer an anachronism? Its a charge thats often been lobbed at the Mac maker by the PC majority--with some justification.

As the last company to roll its own vertically integrated hardware and software for individual consumers, developer of the last commercial desktop OS to offer any real challenge to Windows decade-plus hegemony, and sole survivor of the 70s wave of independent personal computer makers, Apple more closely resembles a coelacanth or other prehistoric beast than it does a turn-of-the-century PC manufacturer.

But when the status quo is as dismal as it has been over the past year, maybe a little creative anachronism isnt such a bad thing. Apples old-fashioned product values and its unfashionable belief that computing is still cool may never make it the desktop standard; so far, however, these qualities seem to serve the company just fine in these tough times.

Consider last weeks earnings announcement, when Apple revealed that it had turned a $38 million profit--or $0.11 per diluted share--for its fiscal fourth quarter, matching the numbers predicted by the First Call crew of financial analysts. (Compare that with Q4 2000s loss of $195 million, or $0.58 per diluted share, when Apple took its lumps over the abject failure of the Power Mac G4 Cube to connect with users.) Its $1.38 billion in revenues marked a 37 percent rise from the year-ago quarter, and margins were 30.7 percent, up from -2.1 percent.

Now, even an Apple fan like me has to admit that these arent blockbuster numbers in the total scheme of high tech. The past quarters profit would represent pocket change to a Microsoft or an IBM, and the Macs share of the PC market seems to be in no danger of breaking out of the single digits any time soon.

Nevertheless, even the companys detractors have to give it some props: Apple delivered a discernable profit in the wake of Sept. 11 and the midst of a national recession, it did credible retail business despite terrorism scares and free-floating consumer malaise, and it moved plenty of product in a quarter that lacked significant new Mac announcements.

Apple even managed to break into a whole new consumer category during Q4. Its iPod MP3 player represents the first time since the return of Steve Jobs that Apple has ventured beyond personal computers. Despite its slick design and speedy FireWire interface, many of us armchair CEOs expressed reservations about whether Apples $399 effort would succeed in an already crowded market--especially considering that the iPod requires a Mac to configure it.

Judging from initial sales figures, the company seems to have outwitted its critics; Apple sold a healthy 125,000 iPods since the gadget debuted in October, and anecdotal evidence from dealers indicates that the allure of the iPod has convinced at least some well-heeled music fans to invest in a Mac purchase.

Other Apple hardware has been selling nicely as well, according to Apples figures. Take portable Macs, which continue to sell nicely after major revamps to the professional PowerBook and consumer iBook lines early in 2001. During his conference call with analysts, Apple Chief Financial Officer Fred Anderson said professional and consumer laptop systems accounted for 40 percent of the companys total Q4 sales.

Unsurprisingly, the weakest spot in Apples hardware arsenal was its professional desktop systems. Despite some minor design tweaks at Julys Macworld Expo/New York, the Power Mac G4 models are overdue for a real boost in performance power, especially now that Apple has refreshed its iMac line with systems running PowerPC G4 processors at virtually the same clock speeds.

(Take heart, graphics pros: Apple has been in the habit of renewing its products in stages. Now that the company has shored up its consumer systems at this months Macworld Expo/San Francisco, I believe it will turn its attention to its professional users very soon.)

Even Apples brick-and-mortar retail efforts proved reasonably successful during this very challenging quarter. Although the Apple stores lost a small sum since their introduction in May 2001, Anderson said they did manage to generate $48 million in revenues during Q4. And if hes right that 40 percent of visitors to the 27 nationwide Apple stores (and those visitors apparently numbered 800,000 in December alone) were Mac newcomers, thats a compelling testimonial to their marketing power in the face of recent retail challenges.

Throughout 2001, Apple continued to eke out a profit and hold its small but solid piece of the PC market. Whats more, it managed that feat without major layoffs or factory closings; and with the exception of the Power Mac G4 Cube (doomed for a variety of reasons beyond the companys financial health) it has done so without cutting back on the quantity or quality of its product offerings.

And things look like theyre getting better, at least for the short term. Apple and independent retailers alike say customers are pre-ordering the new iMac at a fever pitch; meanwhile, the imminent delivery of new Power Mac towers should satisfy considerable pent-up demand among the Mac high end.

Its an open question whether the funky new consumer system can actually increaseApples market share among new users and Windows converts, the way the original iMac did. But at any rate, Apple looks like it will remain stable and profitable through another quarter as the tech market as a whole continues to find its feet.

Mac veteran Matthew Rothenberg is best practices editor for Ziff Davis Medias Baseline magazine.