Why iPod Can't Save Apple 1121
MadMirko writes "MacNN quotes an article from Money Magazine titled Why iPod can't save Apple, which says 'the buzz on the digital music player and "swank" storefronts are masking an ebbing bottom line, noting reduced CPU sales (resulting a shrinking marketshare), decreased profits (in part due to the lower-margin iPod and little-to-no profit at the iTunes Music Store), failure of the iPod to drive CPU sales, failure of the retail stores to increase marketshare, hidden retail store costs, no operational income, and little value in the stock.'"
Better link to article! (Score:5, Informative)
http://money.cnn.com/2004/03/17/markets/free
-Aaron Mitti
Apple is dying...again. (Score:5, Informative)
So, from where I am viewing the market from the perspective of an end user, Apple's market position is looking pretty good to me. This article appears to be another one in the long chain of prognosticators predicting the demise of Apple Computer, but what they always miss is the disproportionate influence the company has had on the personal computer industry. Hey, where would Microsoft get all their R&D from if not for Apple?
too expensive (Score:-1, Informative)
Re:Better link to article! (Score:2, Informative)
http://money.cnn.com/2004/03/17/markets/freeintro_ ipod_0404/ [cnn.com]
Re:Better link to article! (Score:3, Informative)
http://money.cnn.com/2004/03/17/markets/freeintro
With 4 billion in cash and no debt ?? (Score:5, Informative)
Raises concerns, but panics a bit too (Score:5, Informative)
The market share numbers aren't terribly convincing (since there's about a dozen different ways to measure market share, and one can always pick one that fits what you're trying to say). Without more info, it's hard to judge. Though Apple would obviously rather hear others saying their numbers are going. I've heard that the iPod is the #1 digital music player today and Apple has something like 75% market share for online music, so there's an upward trend. It would be interesting to see Apple's own tracking of unit shipments compared to these numbers. (I'm ignoring comments from someone suing Apple are never convincing until the case is over. There's too much incentive for the plaintiff to basically try to blackmail the defending company into settling).
However, the author is suggesting that Apple's cash flow from operations is negative, while its cash flow from investments is positive. I presume Apple's cash flow from financing is 0 since they've retired their debt. That's not a good pattern for a mature company, and after 20 years, Apple sure is.
Apple has been remaking itself as of late, and one would expect that its cash flow profile would match that of a growing company. And since Apple has a lot of cash, it wouldn't have positive cash flow from financing (meaning its getting its money from VC funding or by borrowing), but positive cash flow from its own investments to finance its remake of its operations.
As an investor, I would argue that I would rather have Apple financing its changing operations from investments rather than from financing. That's because financing from investments is better for shareholders since it doesn't dilute shareholder equity the way issuing more shares or even borrowing from a bank does.
So is it okay for Apple to have negative cash flow from operations at this time? I think so. They've changed their business quite a bit since 1996, and those changes will affect operational income in the short run. For example, Apple has opened some 80 stores, and that's a tremendous operational expense since they've incurred a lot of fixed costs. I believe that their retail story makes sense, since they're the direct opposite of most computer stores. In a way, the Apple Stores are like Target to Best Buy, CompUSA, and the others' Walmart.
Since the stock market currently values Apple at nearly the price to earnings of Dell, it means that the market believes that what Apple is doing will pay off in the long term. And it probably will. I believe Mac OS X and Apple's incredible industrial design are the foundations of its future success. The iPod is positioning itself as the next Walkman, and Apple's in a great position regarding digital music. Their recent deal with HP further solidifies this. As for iPods driving Mac sales, anecdotal evidence is often misleading, but I've met a number of people who have recently bought new Macintoshes after being Windows users for years, and the iPod has helped drive that. There's always room for Apple to pull another Cube and screw things up, but Apple's track record has been respectable in the past couple of years, so people are giving them the benefit of the doubt in that place.
One of the Points (Score:5, Informative)
This is one of the points that the article is considering. Low margin means that the sale price is not much higher than the price to market, and price to market includes a lot more than the cost of manufacturing. How much do those snazzy commercials take from the budget? How many dollars disappear to get the ITunes concept going? These sunk, hidden costs are part of the equation, and they can cut profitability on a product line faster than you can say "betamax", especially since Apple was banking on Ipods driving people to buy more Macintosh computers, and it really hasn't happened.
Virg
Let's see your Dell zealots (Score:5, Informative)
When you can show me a public display like the Longest Line [mac.com] then I might agree. (Be warned, it's a video clip.)
Re:Sheesh. "The Sky Is Falling" (Score:3, Informative)
Bullshit. Customer loyalty is an easily quantifiable figure. Car industry market predictions include factors of customer loyalty--why would computer sales be any different?
I hate to be the one to bring you into the real world via such "shock therapy", but building, measuring, and retaining customer loyalty is doubtlessly a highly spreadsheeted and engineered activity at apple, inc done largely by accountants and MBAs.
Re:Sheesh. "The Sky Is Falling" (Score:3, Informative)
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:5, Informative)
Apple makes obscene profit margins on the rest of its hardware, while making traditional consumer-electronics margins on the iPod.
Remember also that Apple has all sorts of overhead. They need to keep OSX current, they develop their own software and must spend R&D money to improve their hardware... all to sell a few computers.
Contrast this to Dell. They do no R&D... they assemble.
Sun lived on Apple's business model for years, and look where it brought them. When was the last time you bought a Sun Workstation?
Re:Apple seems to be coming back (Score:3, Informative)
PowerPC is going to help here (Score:5, Informative)
But IBM is on track to hit 3GHz this summer and cut power consumption by ~50% at the same time. The roadmap goes out to much higher clock rates, and includes multiple cores on one chip. If this happens, and in a few years we're looking at dual core 4GHz PPCs that use less power than single-core Intel/AMD CPUs, then that's a big deal.
Dell R&D Correction (Score:4, Informative)
Re:Apple seems to be coming back (Score:5, Informative)
That's probably because Apple laptops are price-competitve with Wintel. Wintel desktops are cheaper than Apple because of economies of scale which don't really apply in laptops -- all laptops are basically proprietary designs. So if you buy a Powerbook or iBook, you get a quality laptop at about the same price as a Wintel laptop, plus desirable features like OSX and much longer battery life. Not surprising, then, that Apple laptops are popular even while the desktops are kind of a niche market.
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:4, Informative)
Some of his better known quotes are here [amusingquotes.com].
My favorite has to be, "Ever notice how it's a penny for your thoughts, yet you put in your two-cents? Someone is making a penny on the deal!"
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:1, Informative)
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:3, Informative)
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:3, Informative)
Yeah, I think the the fact that the default mouse has one button is lame, but people who prefer more buttons can certainly use them in OS-X. I plug a Logitech USB mouse with scroll wheel into my PowerBook, all three buttons work fine, and the scroll wheel works in every app.
If you're a Unix geek and you can afford one, or your work can afford one, the new PBs are the best notebooks around. The G5 towers are pretty swanky too.
-- Bander
Re:Sheesh. "The Sky Is Falling" (Score:1, Informative)
Since 1986, my brother-in-law[1] has shelled out "about $1000"[2] every other year to buy a PC that is fast enough to run new software. Over 18 years, that totals out to around $9000. This does not include any additional software he had to buy for features that came standard on Macs.
Since 1986, I have only had to buy three Macs (1986: MacPlus; 1995: PowerMac 6100/66; 2003: G4 Sawtooth). This was at a total cost of around $8800 [3].
The MacPlus was replaced because of a bad power supply. The PowerMac 6100 is still in use as my sons' homework computer. 66MHz is more than enough to handle their typing speed :)
This comparison does not include the aggrevation of swapping out a PC every other year. It does not include his purchases of Win3.1/95/98SE/XP. (But then, it doesn't include my purchases of 10.2 and 10.3. All my previous MacOS versions were free.) And, of course, I'm not counting his countless hours of aggrevation configuring his plug-n-play devices :)
---
[1] I have tracked this because my brother-in-law has some sort of anti-Mac vendetta. Every time we meet, he goes on and on about how terrific his new computer is and continues to berate my "old" Mac. I don't know what fuels his compulsion.
[2] I suspect he actually spends more than $1000 for his PCs, but we'll work with your numbers on this one.
[3] Breakdown:
MacPlus: $2500 + $1000 for 4Meg (woo-hoo!) RAM
6100: $2500
G4 (500MHz): $2800
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:4, Informative)
without any extra software install, left, right and wheel do exactly what you think they would. wheel click is paste in some apps (like terminal and prolly X11) and buttons 4 and 5 can be used for expose.
with something like usb overdrive instyalled then you can map any button to a variety of functions so I have middle click as paste in all apps, button 4 as copy and button 5 as expose - all windows.
makes for a nice mousing environment
dave
Re:Apple needs saving? (Score:2, Informative)
Do some reasearch before you blindly make statements.
Apple has has "Cash & Equivalents" of 3.4 billion (as of the end of '03). Just look at their balance sheet.
Though, I will agree, they are not doomed. They turn a profit every quarter, and last time I checked companies that post profits are not doomed.
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:5, Informative)
This is a great point, but it's not longer true. It was true several years ago, however. Dell now does a good deal of in house R&D. They used to buy laptops from Sager and rebadge them as Dell. Now their laptops are designed in house and a good deal of engineering goes into them. Take this [dell.com] for example.
With the Dell Axim, their Ipod clone, their line of custom cases, laptops, and even proposed standards (dell is pushing for a standard port for upgradeable graphics cards in laptops, and is developing a solution in house for it). They are way past their assembler days of yore.
Re:Raises concerns, but panics a bit too (Score:4, Informative)
> money on operations, wouldn't it make more sense to cease
> operations, wind up the business, and just make money on
> the investments? Is there some major financial concept I am
> missing here?
Tha's a good question. Companies that are growing (or changing significantly) can finance their growth in two ways: cash from financing or cash from investments.
1. Cash flow from financing is the typical way to do it. You can get money from a venture capitalist fund (in exchange for a lot of issued stock and partial loss of control). You also can get money from banks by taking on long-term debt. The way this works out is this dilutes shareholder equity indirectly since in the event the company goes out of business, the bank gets in line for assets before any of the shareholders. Although technically this should have zero impact on a company's balance sheet, it does tend to make investors pissy.
2. Cash flow from investments gets money into the company without diluting shareholder equity. That's why shareholders prefer this method, but few companies are in a position to do this.
This incoming cash flow is then invested into operations to expand the business, and thus cash flow from operations is negative. Eventually, the company wants to have positive cash flow from operations and use that to sustain the business. So, yes, the end game is for the company to have positive cash flow from operations and to a lesser extent positive cash flow from investments, and 0 cash flow from financing (unless the company is taking advantage of debt leverage, then there will be a positive cash flow from financing).
So why do they need this cash? Because one way to become cash flow positive from operations is to increase the company's operating leverage. Think of a graph of costs as a function of sales volume. The slope of the line is the variable cost, and the y-intercept are the fixed costs. Generally, for cost structures, the larger the y-intercept for the line, the smaller the slope of the line. So the idea is to get the y-intercept of the line up and the slope approaching 0.
The way to do this is to adjust the cost structure such that the variable costs are as low as possible. The way to do this is to increase the fixed costs such that at the targeted sales volume, the variable costs are significantly lower than the competition.
So in the short term, Apple is increasing their operating leverage using financing from their investments. It's a good strategy assuming that they can succeed. And as I said in my grandparent post, I don't think there's reason to doubt Apple won't.
EE Times don't concur (Score:3, Informative)
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:5, Informative)
Try reading Sun's annual report sometime. You might come to the realization that your company is in the minority by far.
Sun's cash cow back in the day was the $10,000 pizza-box workstations that they sold to universities and companies. The market has completely vaporized expect in the minds of
Hell -- even SUN abandoned that market. Most Sun people are using Sun Ray terminals last I heard.
I think you meant Ecclesiastes (Score:3, Informative)
Few modern scholars still believe Solomon was the sole author of The Book of Ecclesiastes, where "there is nothing new under the sun" is most frequently cited (Ecc. 1:9). I can think of at least 3 instances in the first 7 chapters where a variation of "under the sun" occurs, and the overriding notion is one of "nothing new here, move along." It's usually accompanied with "chasing after the wind."
Proverbs is much more a collection of one-liner wisdom, as opposed to the somber, old-age reflection of Ecclesiastes.
In best Bible Nazi voice: "No points for you!"
(Points +/- for me to be determined by those even more anal than I.)
Tim
Re:Oh this is silly (Score:5, Informative)
* HyperTransport [hypertransport.org]
* PCI-X / AGP
* DDR SDRAM
* S-ATA [serialata.org]
* Gigabit Ethernet [ieee802.org]
* IEEE [ieee.org] 1394b a.k.a. Firewire 800
* USB [usb.org] 2.0 [usb.org]
So, tell me, which of these, which will be the only interfaces that you can sanely use, is proprietary?
In the PC world, anything other than an Opteron machine can compare in specs.
Nonsense. (Score:3, Informative)
Apache vs. MS ISS for example.
Dell spends ~$118 million per quarter on R&D (Score:4, Informative)
So I checked their last 10Q statement they filed with the SEC and discovered that Dell spends around $118 million each quarter on "Research, development and engineering".
burnin
Marketshare (Score:3, Informative)
Re:Apple's Lifeblood (Score:2, Informative)
Re:Except that they don't make any profit on iTune (Score:3, Informative)
It is next to impossible to profitably conduct a VISA transaction for less than $1, particularly in an internet business where fraud incidence is higher (and therefore transaction fees are higher).
Every time a merchant accepts a credit card transaction, the associated CC network and affiliated Banks charge a fee. Normally this fee is X% of the purchase price, based on things like volume, risk, fraud, etc. The rub is that there is a minimum per-transaction fee (that varies from merchant to merchant).
The only way the iTMS makes money is if people purchase multiple songs in the same session. This is why Apple pushes things like Gift Certs and their "Allowance" packages so much - it allows them to process a single VISA transaction for 20 or 30 songs.
The network is such that a merchant purchases services from a CC Merchant Services vendor or a bank. The CC Merchant Svcs company must contract with a bank to have their transactions processed (only banks may directly transact with the VISA clearinghouse - which is a consortium of member banks). All of these networks need a cut, which is why low dollar credit card transactions are expensive. I know MasterCard operationally is almost identical to VISA, I am less sure about AmEx's model.
The bottom line is that for every single or two song transactions Apple conducts, they probably are losing money on the purchase.
Re:What Part of the Market? (Score:2, Informative)
> remarked: "I use a Mac, it's like Linux with class
> and QA." (or something close to)
That wasn't just any Java developer - it was James Gosling (the main architect of Java).
wtf!!!!!! (Score:1, Informative)
Re:Apple's Lifeblood (Score:5, Informative)
The settlement had to do with other terms.
Re:Apple's Lifeblood (Score:2, Informative)
Microsoft invested $150 million for Apple non-voting stock. It strikes me as being very strange that a "settlement" would include them getting stock for their payment.
Here's their own press release:
Microsoft Press Release [microsoft.com]
Regardless of their motivation, they still invested.
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:5, Informative)
Re:No, it's not (Score:3, Informative)
Re:Apple is dying...again. (Score:3, Informative)
Not to be a pedant, but Safari's only the default browser in Panther (10.3). 10.0, 10.1, and 10.2 all use IE5/mac as the default browser. It does make sense as people upgrade to Panther, but knowing how many of my friends are sticking with their ancient G3s and not upgrading, the 'default browser' argument can't be the only cause.
Re:Yes, yes, yes, Apple's dying, blah blah blah (Score:5, Informative)
That one died a long time ago - the RAM, HD, optical drive, graphics card, peripherals, plugs, cables, ethernet ports, and so on are all pretty standard.
The only difference between a tower Mac (G4 or G5) and a PC when it boils down to it is the motherboard and the CPU, but how is this different to buying a PC board that supports a P4 or an AMD chip - you usually have to replace the board if you want to up the speed of the CPU unless you stick with a compatible form factor.
The eMac and iMac aren't easily upgradable, but they're not designed to be.
The iBook and Powerbook are both fairly easy to upgrade in terms of new hard drive and optical drive - both parts are standard laptop components used in PC laptops.
It may cost more to get into the Mac platform (I agree, all new software is expensive) but once you're on it doesn't cost a huge amount more to keep up to date with the hardware compared to updating a PC. The long working life of Macs also helps here - from the entirely unscientific anecdotes of mine, I've dealt with a fair number of Macs and PCs and the Macs tend to have at least twice the useful life before needing a hardware upgrade.
When the PC needs upgrading, I can just sling FreeBSD on it and use it as a server, but it means a new machine is needed. The Macs I have just keep going - running OS X here on a battered old G3 which is ambling along nicely.
Re:Oh this is silly (Score:1, Informative)
PC's will keep Apple alive (Score:5, Informative)
The #1 reason is that there are no virus problems on a Mac, and no major problems with spyware, malware, and general browser hijacking. Having someone like me come to their house to clean out their PC will cost them much more over all than if they had just bought a Mac in the first place.
The #2 reason is the digital hub aspect. Adult's want mostly the same things from their home computers: Music, Digital Photos, Email, Internet Access, and Instant Messaging. All things that a Mac does better or the same as a PC minus most of the security woes and difficulty of setup. Most of the stuff they want to do will work right out of the box, nothing to install or mess with.
The #3 reason is investment. After 3 years, you can sell your Mac and still get a lot of money for it. Try selling a 3 year old PC and you will get a fraction of what a Mac resells for.
So, in conclusion, I see that as Windows gets so bad that I spend 3/4's of my day cleaning out spyware, viruses, and restoring hijacked machines to a workable state, people will start to get tired of it and turn to the best alternative. And I will be there ready to give them directions to the nearest Apple store.
Re:Apple's Lifeblood (Score:3, Informative)
Linux uses the ELF (The Executable and Linking Format) which is available across all platforms.
However, you won't get that Intel code to run on a Motoral chip, but then again, you can't do this right now with Windows or OSX. So it's no loss to you.
The gcc compiler (and nearly all others) have flags which allow you to constrain your use of op-codes to those likely to run on a widely adopted chipset. Many use 386s as the base, as it is supported in all Intel/AMD CPUs. Others have moved to 586 as the base. Either way, you're not in as dire straits as you advertise.
I mean, other companies manage to sell close proprietary software in the Linux arena, implying that it's not impossible (and profitable in their cases).
As far as directory structure goes, etc. LSB addresses these issues. If you're looking for something that's found in two or three places (and not addressed by the LSB), write a friggn "switch" clause or a couple of "if" statments.