Whither Apple?

My father once said that you should never have money in the stock market that you can't afford to lose.  You could probably add another caveat, never count on understanding what drives Apple stock up or down.  Apple is a volatile company.  A company driven by hit products.  Right now they are riding the greatest hit in the company's history.  None of us is smart enough to know long the positive ride is going to last.

On November 1 last year I wrote a post, "The Apple bubble."

There have been new computer products and a seemingly endless positive run of news for Apple.  Yet I wonder if all of this isn't creating a bubble of expectations which Apple will never be able to meet.

I've not been watching Apple's stock recently so I was caught by surprise when an Apple employee told me that he was going to have to wait until the stock went back up before he sold his options.  A quick check of Macsurfer turned up this article, "Apple sheds $17 billion in market value in four weeks."

February 6, 2006 - Shares of Apple skidded more than 6 percent Monday in heavy volume to $67.30, their lowest level in more than two months, on concern that the company's expected growth for the year has already been factored into the price. The stock is down 22 percent from the highs it reached last month...

So where is Apple headed?  Unfortunately it doesn't matter as much what Apple is doing as is does what the market and investors perceive that Apple is doing.  Right now there are enough worries about the Apple Intel transition that investors are nervous about Apple.

Apple is also a cyclical company.  When it's hot, it can do no wrong.  When Apple starts to cool it can do no right.  I don't think we're there yet since there is still plenty of positive Apple news out there.  The challenge is that at some point Apple either has to come up with another iPod like hit or figure out how to sell a whole lot more computers.

I'm no longer convinced that selling computers is part of Apple's DNA. They're absolutely great at making them, but selling them is a totally different skill set.  It's always hard to tell how Apple is doing, but one of the measure that I always use is television advertising.  When Apple is actually worried enough to pay attention to its computer business, they often begin running television advertising for computers.  They did it with the iMac and with the original G3 products.  Perhaps it is just a coincidence, but I've seen several Apple ads telling us about Macs and Intel processors.

In another week we'll be half way through a very critical quarter for Apple.  I'm not pulling back yet on my 6 million Macs forecast this fiscal year, but if Apple doesn't ship at least 1.4 million Macs this quarter, I think we may have to re-evaluate how the transition to Intel is going for Apple.

Being successful in the computer industry is always a matter of timing.  The windows of opportunity are always smaller than a company might wish, and Apple doesn't have a great history of being successful in marketing Macs to anyone other than Mac users.

If Vista comes out and is a strong success, Apple may have missed their window to grab a much larger chunk of the desktop operating system market.  I'm doing a lot of analysis on our website traffic at the company where I work.  I'm seeing the Mac share of visitors regularly come in at 5%, surprisingly the Linux desktop is actually showing at  less than 1%.  Of course the rest is Windows.

There is no doubt that Apple has made progress in market share, yet the challenge now is turning that progress into support for Apple stock prices.  The next six weeks should be very interesting for Apple watchers.

Comments

[Mick]

Apple's equity to sales ration was abnormally high during MWSF. There should have been no mystery that the stock price was coming down. The only question should have been how far. (That's what economics as a discipline can only model right now - direction of change - not magnitude).

Remember that talk about how Apple was worth more than Dell for a while? Well, how could that be sustained when Dell has many more times the earnings of Apple? It can't.

[Super Dave]

As a university student I have to disagree that "Apple doesn't have a great history of being successful in marketing Macs to anyone other than Mac users."

Although it might have historically been true, it's not anymore. Almost half of everyone I know right now is getting a Mac. They are not going to change back to Windows, and as these people get older…

David

[Terry J. Crebs]

Agreed, Apple like all high-tech stocks is volatile. However, talk to the college kids, most appear enamored with their iPods and iBooks. One engineering student told me yesterday that Dell computers are considered increasingly inferior to Macs--his quote: "cheap people who don't understand technology buy Dell." Yeah, the above is anecdotal, but perceptions may be a changing -- Vista/Longhorn had better be both soon and good, or that much-quoted 95-to-97% market-share statistic could erode significantly.

[Andrew Hedges]

As at least one commentator have pointed out, Vista actually presents an opportunity for Apple because many Windows users will need to buy new machines just to run it. If you're replacing your hardware anyway, why not consider a Mac?

[mchuman]

I've owned PCs for 20+ years. The older I get, the more I hate PCs and windows, but everything runs on it. I've also owned an ipod for two years and have become part of the halo effect, and I love apple's designs. As soon as the mac mini and vista comes out, I'm running to the store to buy it and setting up dual boot (even if it is a technical feat). I can't WAIT to never buy a pc again! I hope this is the year!

[DigitalC]

If Apple isn't interested in selling computers, we're sure seeing a lot of that new commercial about the Intel chip in dreary boxes and now it's in a Mac.

Is Apple disinterested in selling Macs?

In a word, Nah!

[ocracokewaves]

You will sporadically see Apple computers in TV ads but only when the product is in transition or somewhat challenged in getting the products moving. Other examples are the iMac when it first came out, and the one time G5 ads.

Real interest in selling computers requires more than running a few television ads. That is especially the case in a product like the Mac where the differentiation from other products in not just a simply explained price.

In six months come back and tell me how aggressively Apple is advertising their computers. When I see Mac ads with prices displacing Dell ads on the back of Parade magazine, I'll acknowledge that Apple is throwing some real weight behind taking computer market share. Has the MacBook Pro even really shipped yet? Maybe they're trying to beat the announcement to shipment record that was set by the G5 Xserves.