We changed the stray characters but left the entire content of the report as it first appeared in July '98. A lot of what was discussed in this report has come true in the intervening time and some is yet to come. And, we've changed a lot of our positions on our concerns and objections regarding Apple's future prospects in the intervening months. One need only look at the archive of Robert Morgan's RFI Reports on MacWEEK.com. If you raise your eyebrows over some of the concerns that were stated about "Set Top Boxes" and other issues, please read the relevant RFI Reports that are in the MacWEEK archives here. You will see that a lot has changed in the intervening months, especially about Apple's Set Top Box strategy, Pro boxes, iMacs, earnings, future prospects, etc. One by one Apple and Mr. Jobs have addressed and ameliorated, even allayed, those concerns.
With that said. You will see that all of the reasons why we believe that the move to New York is a good thing will realize that the reasons we used in the MWNY RFI Report column were first used all the way back in July '98. If "spin was spun" then it was "spun" back when we were opposing the move back to Boston.
Enjoy.
RFI wasn't intending to go to MacWorld Expo NY as we weren't really expecting anything "Big" to really occur that we didn't already know about. We were going to go and meet with people who were attending MWNY but that was about it. Well, we did go for a few days and were pleasantly surprised with the Expo. While there were no "Big Surprises" at the Expo, as far as we were concerned, it was a "Huge Success."
RFI knows that "The Creative World" was iMacWorld and "Consumer" focused. We know that "The Creative World" types felt "stiffed" because their concerns and issues weren't addressed. What was supposed to be "Pro" wasn't. We know of all the other complaints that people had about MWNY, but it was a success as far as we're concerned. A "Success" for: Apple, Macworld, Mac Publishing, MacWorld Expo, etc. And yes, we had some heated discussions with people about whether MWNY was a "Success" or not. Most of the people saying that it wasn't were using MacWorld Boston '97 as a comparison. A totally unfair comparison at that. MW Expo Boston '97 was "unique" for numerous reasons. Comparing MWNY to Boston '97 is like comparing the launch of Win98 to Win95. But that is for a separate item.
So, overall MWNY was not only a "Success," which we will elaborate upon, but it also allowed us to get some impressions as to where Apple and the Mac market is heading now that it is on "Two Tracks."
This isn't a "puff piece" report that gets all giddy over Apple and MWNY. It's a realistic assessment of what we honestly think. That Apple still has challenges to face going forward is a given. And a lot depends on how Apple addresses them as to whether they will add other boxes to Mr. Jobs' "Apple Hierarchy of Skepticism."
Enjoy the report.
The "Big Surprise and Special Guest" was none other than Mr. Jobs himself. And it was a good thing that he was able to deliver the keynote in person. Other than the "Apple Hierarchy of Skepticism," the keynote, as more than one opined, was "A Macworld Expo Table of Contents rather than a keynote." In other words, there was very little "content" in the keynote that people would have expected. If anyone other than Mr. Jobs was the "face present" for the keynote, it might not have been pulled off as successfully as it was.
So, let's address the keynote. And we'll use the "Apple Hierarchy of Skepticism" as the basis of the analysis.
Yes, Apple is surviving and has proven to the markets that it's not going to dry up and blow away in the near future. But perfectly rational adults do have questions about Apple's viability in the future. In the Tech Sector the entire business is dynamic and the future must always be addressed in both the Strategic and Tactical plans of any company; even Microsoft. No company is "immune" to getting caught flatfooted.
As far as Survival is concerned, the entire Set Top Box controversy was exactly about that ã Survival and Growth. With each passing day there are more reports of companies entering into this arena and those who disbelieve that these devices will impact computer sales have another thing coming. It's a "Survival" issue. Don't worry, this isn't going to entirely focus on the Set Top Box. We're addressing one of "Apple's Hierarchy of Skepticism" items.
Everyone knows that Microsoft is entering into the Set Top Box arena with its WebTV "NexGen" device as well as entering into other deals, etc. Yes, Microsoft "gets" this market and got it before a lot of the others. The others are in a race to get in before they get pushed out. But, here is a report from NEC vis-a-vis its Strategic moves going forward. Read it. It is relevant:
Bloomberg News
July 13, 1998, 12:22 a.m. PTNEC to Stop Selling Basic TVs in Japan to Focus on Multimedia
Tokyo, July 13 (Bloomberg) ã NEC Corp., Japan's largest maker of microchips and personal computers, said it'll stop selling conventional televisions in Japan, and focus instead on new TVs which can browse the Internet and hook up to digital cameras.
Tokyo-based NEC's subsidiary NEC Home Electronics Ltd. will stop selling conventional TVs in Japan when it's disposed of existing inventory, said NEC spokesman Aston Bridgman. The TVs, which NEC Home Electronics made in Thailand and shipped to Japan, had become less profitable as the yen weakened the past year, Bridgman said.
NEC will concentrate instead on selling high-end TVs which can link up with the Internet and digital cameras, and take floppy discs, Bridgman said. As part of the plan, NEC Home's Thailand factory switched at the end of March to making personal- computer displays.
'We're focusing on TVs with multimedia applications because we're a stronger computer-maker" than a maker of conventional home electronic goods, said Bridgman. NEC will also continue to push plasma-display TVs ã wide- screen flat-panel TVs, without bulky cathode-ray tubes, which offer brighter graphics than the liquid-crystal displays used in notebook computers, Bridgman said.
Sales of home electronics such as TVs, videotape recorders and car navigation systems generated 210 billion yen ($1.47 billion), or 4.3 percent, of NEC's 4.901 trillion yen in sales in the year ended March 31.
Now, if NEC and all the others "get it," then Apple's survivability will also rely on how it faces this competitive threat to its general as well as hardware business. NEC will most likely ship those televisions to the U.S. as soon as there is demand for them here and they might also cut in to the sales of Set Top Boxes. That the NEC announcement is a confirmation of some of the things mentioned in the AMP Special Report, this "threat to Apple's survival and growth" will remain an issue.
Survival in the Tech Sector is not just addressing the issues of the past and present but also identifying and addressing "Threats to Survival / Growth" that are coming down the pike. And, thinking that QuickTime Everywhere is an answer does not address the larger issues at stake.
So, RFI guesses we just added another level to "Apple's Hierarchy of Skepticism." Until and unless Apple addresses this "Future Threat" then we're going to keep a close eye on what Apple does and does not do regarding this and other relevant issues.
Over the past year Apple has done yeoman's work in stabilizing its business as well as giving the markets 3 successive quarters of profits to point to. They've done a great job doing this. But, this is probably the last quarter where Apple will be able to use those cost savings, etc., as a boost to earnings. And, even with the Q3 results the analysts and others will be looking at unit sales more than cents earned. Those "hefty G3 margins" can't last forever.
And, both 1 and 2 are interrelated. What about going forward? What about the pressures that the entire Computer Industry will feel from those Information Appliances and other Consumer Gizmos that others will be churning out as "Good Enough" Internet gateways? How will those competitive threats impact earnings, growth and stability? Sure, it's a few years away (probably sooner) but the planning and positioning has to be done now, not later.
Another "Competitive Threat" to Apple's Stable Business and Growth is this recent development:
Internet Appliance Will Start to Take Over from PCs in 2002, Says Researcher10 July - DNWire ã Unit sales of the PC will peak in the US consumer market in 2002, after which cheap, convenient and reliable Internet appliances will challenge it for market and mind-share, according to market researcher Forrester. Low-cost appliances with simple Internet connectivity and high reliability will be attractive to businesses and consumers who want to reduce the costs and complexity of computing, the researcher said.
In US businesses, Internet appliances already form a $6-billion market and, Forrester said, this will rise to $16-billion in 2002. "Firms are reaching the limits of what they can achieve in a PC-centric architecture," said Carl Howe, director of computing strategies at Forrester.
He added: "In the next five years we expect to see companies forsake the 'PC for everything' approach and start moving towards specialised devices with limited but well-understood functions."
Internet appliances will break down into three broad segments: computing devices, such as palmtops; communications devices such as screen phones; and TV products such as set-top boxes.
In Europe, Forrester said there will be 19-million Internet appliances by 2001. Therese Torris, director of new media analysis in Europe, said: "With mobile phones already in wide use throughout Europe, Internet-enabled phones will be the early appliance leader."
But she said that take-up in each country would differ, with digital set-top boxes and TVs strong in Germany and the Netherlands, and Internet-enabled screen phones in France.
While this "Research Report" is anywhere from 6 months to 3 years too late to be "groundbreaking" (5+ if you take in to account Echo 4's coverage initiation in '93), this development is not only a competitive threat to Apple's PC sales but the sales of its Consumer Lines / Appliances as well. And, it is not a "competitive threat" that Apple can elect to ignore if it is to maintain its "Stable Business" and "Growth" prospects. It's as simple as that.
RFI doesn't mean to harp on this issue but the "threat" is all too real. Not just for Apple but the entire Tech Sector. If they do not address this competitive threat a lot of the "negatives" that RFI has been warning about this "Revolution / Evolution" will come into play.
And no, we're not trying to be "negative" or trying to score points for our position. We are offering an honest assessment of the looming competitive threats that Apple faces.
Apple has decided to go with a "Two Track" product strategy: Consumer and Pro. It's a great move as it not only simplifies the product line but also allows Apple to use that "Mother of All Boards" whose existence was confirmed at MWNY. Desktop and Portable ã Consumer and Pro. It's almost like Henry Ford and the Model-T: "You can have it in any color that you want as long as it's black..." That wasn't a criticism, but an observation. It's simplification.
So, Apple will offer the Consumer Market both desktops and portables that won't carry the price tags of the "Pro" and previous offerings by Apple. That is a good thing. The iMac was given considerable attention but nothing was said of the "Pro" products. And that bothered those in "The Creative World" and "Pro" sectors for whom MWNY was supposed to be about.
Much ado was made about the 177 products that had been announced being ported to the Mac since the iMac was introduced and Apple started paying attention to games. It's a good thing. But, RFI suspects that the developments with Microsoft, Disney, Mattel, etc. had a heck of a lot more to do with this than just the iMac. In fact, the "key aspect" of the Disney deal lent more credence to those who were concerned about Apple's viability and ability to grow.
Yes, Apple's universe of applications is growing again and others will probably jump on the bandwagon if the sales of iMac even approach Apple's purported target numbers of 250,000 - 400,000 by the end of the Christmas selling season. Already there are over 100,000 iMac's on pre-order, so the lower end of the range is doable as long as there are a sufficient supply of them.
Disney Online was a major part of the applications section and it was interesting to see the reactions to the demo of the site.
It was also during this section that Mr. Jobs made a comment that touched upon the Set Top Box controversy. When Mr. Jobs was discussing the simulation game "Deer Hunter," he stated that he didn't play the game because he was a vegetarian but he knew that it was really popular in the Midwest...
That statement brought laughter to the audience as it appeared to refer to the quote that had run on Apple Recon about Mr. Jobs being sent to the Midwest to live as an Average American. While we didn¼t know whether to be honored or offended, by the allusion maybe Mr. Jobs should listen to those "Folks in the Midwest" more. Especially in the area of software for the consumer products. Not just the software that's available, but the bundle as well. The bundled software with the iMac is "Good Enough" but it's not anything to write home about.
On balance, a lot of people are going to wait and see what other applications are announced for the Mac platform after the iMac's initial sales numbers are in. That will be more telling about the future growth in applications than anything else.
As far as software is concerned, prior to MacWorld Expo people were saying that Apple needed to get the developers their seed iMacs fast because they were doing their Christmas stuff now, not at or after MWNY.
This is the part of the hierarchy that remains to be proven and it is also related to items 1 and 2. In fact, it is the most important part as far as the markets are concerned. How will Apple "grow" outside of its installed base and what is its strategy? Mr. Jobs cited the Design and Publishing, Consumers and Education.
Design and Publishing is one of Apple's "Core Markets" and it is the general category of all those in "The Creative World" that MWNY was supposed to be about. Unfortunately there was nothing really there at MWNY for the Design and Publishing Crowd / Creative World. Not even the speed bumped G3 boxes that were delayed until the current G3 inventory is depleted. In fact, on the day of the keynote RFI received a report that Apple had been working the resellers to take the inventory off their hands and move the product. Well, at least Apple is trying to get the speed bumps out the door as soon as possible. Suggesting that the "Creative World" use iMacs in content creation was ludicrous.
Yet, the "Creative World" won't have their needs met until CY Q1 '99 with those "New Boxes" that are supposed to placate them with their performance and other features. The problem is, that also delays "growth" in this sector and might even cause some erosion as some of them feel that they are being forced to migrate to NT because Apple doesn't have the boxes to meet their needs now. They can't afford to wait 6 months or more for the boxes they need. So, Design & Publishing "Growth" is a wait and see category.
Mr. Jobs also cited "Consumers" as another growth area. The iMac and the eMac/eBook are the products that Apple intends to target the consumers with. And, prior to Macworld Expo, RFI dissected this at length. Given the initial reaction of the crowds at MWNY at least the Mac Installed Base seemed captivated by the iMac and will give the iMac healthy demand. But, what impact this will have on the other Mac desktop sales remains to be seen. Will iMac sales expand the Mac market or "cannibalize" sales of the "Pro" boxes. That's a legitimate concern of some people; RFI included. The margins on the G3 Desktops are higher than those for the iMac. A lot is riding on the appeal of the iMac outside of its installed base; and those who haven't upgraded their Macs in over 4 years, etc.
The other area was Education. The Education market is still important to Apple as one of its core markets even though more and more schools are integrating Wintel boxes into their computer labs and classrooms. In other words, Apple will have to fight for its continued Education market presence. The Artemis was "just what the Ed Channel wanted" and the iMac also has appeal to the them. They're low cost boxes that are easily networked and flexible. The Education channel is another possibility for strong iMac sales if Apple can lower the price point for them as there are still a lot of Apple ][ gs boxes in the Ed Channel. Now, if only Apple would bundle Bernie ][ the Rescue with those Ed Channel boxes they might get even more sales...
Apple's commitment to the Education channel is its "Bread and Butter" so to speak. It has long been known that during the "tough years" the Ed Channel usually pulled Apple's earnings out of the fire or at least ameliorated the weakness in other areas. And, Apple is addressing this market as there is tougher competition for those Ed Channel technology dollars. And they better compete hard as even staunch Mac bastions are integrating Wintel boxes. Something else RFI dissected many months ago.
Mr. Jobs also mentioned Apple's Unique Assets: The Brand, Installed Base (10MM Consumers, 6MM Business, 6MM Education), Design/Fashion of Macs, and Simplicity.
The Brand is great but it's also been tarnished by a lot of missteps over the past several years and it will take time to build it back to its former glory. Not an easy task but not insurmountable either. The Brand, as far as the "Mass Market Consumer" (not the installed base) needs a lot of care and feeding even with the iMac and upcoming eMac/eBook. Yes, it's one of the top name recognition brands but it also needs to be seen by the "Mass Market Consumer" as a viable choice and alternative to other options.
Yes, the hierarchy seeks to address this but the average person in the Mass Market still ask if Apple was still a viable option as far as buying a box goes. And if Apple also addresses the Mass Market Consumer with products that would instill brand loyalty then Apple could leverage the brand for growth outside of its installed base and "traditional markets."
Apple's "Installed Base" of 22 million is interesting as the total is slightly lower than what others have been representing of late. Granted, the numbers were approximate, but what does the installed base include? Everything back to Apple ][? If we use the installed Consumer Base (10MM) as a potential market for iMac, we might be able to gauge eventual sales of iMac boxes.
If we take it as a "given" that of those 10 million Consumers in the installed base about 15% of them have not bought a new computer in the past 4 years then that gives us a potential consumer upgrade market of 900,000. If we also take another 5% of the Consumer market installed base who would buy an iMac just to have one, we have another 30,000. So, we're under 1MM iMac sales in its first year. Not bad and well within the scope of Apple's target numbers.
The Business market of Apple's installed base is a lot harder to gauge as it¼s "Good Enough" for an extra SOHO box but limited in use. It's the monitor size. An information station, yes. Internet box, sure. But 17" is becoming standard in the office environment and 19 - 21" is gaining popularity. This sector is the hardest nut to crack even with the Office98 and other viable options. We'll have to see what Apple "does for business." A lot hinges on their Server and Pro strategy.
The Education installed base is another area that needs a lot of care and feeding lest more Education institutions either defect altogether, as far as new purchases, or integrate more WinTel boxes into their new purchases. Granted, Apple got a boost when Dartmouth said the iMac was recommended for incoming freshmen, but that's not the be all and end all.
Design/Fashion: This is something that one of the "La La Land" types who were all hot and bothered over the Set Top Box and other Consumer boxes brought up. Strange, they even mentioned "Barbie" when discussing this. That "La La Land" type stated that "Design and Fashion" was going to be an important aspect of the computing environment as the boxes become more ubiquitous and people care about what the boxes look like as well as what they do. This is a topic that RFI covered as well. Are we starting to see a pattern here? Interesting.
This last item was the lead in to some the finale of the "Boy, Dog and iMac" vs. "Man and Wintel." While the test run of the commercial (that's what it was folks) was entertaining, it's also an old concept. In fact, RFI has a tape of a 6 y/o setting up a 6400 in under 7 minutes. Others have the same type. Granted, it will probably be a great commercial to run on The Wonderful World of Disney this fall, as it will entertain and inform both the children and their parents who see it. "It looks good." But, others might ask what other colors it comes in. The iMac's color scheme would clash with a lot of interiors.
While there wasn't a lot of "Sizzle and Steak" as far as we were concerned, it was a good show and also set a positive tone for the general media coverage of the Expo as well as the financial coverage for the markets. As RFI said before MWNY kicked off, there would be something there for everyone. Well, that is except "The Creative World." Keep your fingers crossed for Seybold and Macworld San Francisco.
Some of the arguments for moving the Expo back to Boston are based on comparisons between MWNY and Boston '97. That's wrong. Totally wrong. Boston '97 was unique in many aspects and better comparisons would be Boston '96 or '95. Using Boston '97 as a benchmark is totally off base.
First. Boston '97 marked the introduction of OS 8, the first major upgrade to the Mac OS in years. It was the "launch" of OS 8 and was certain to generate excessive excitement and interest amongst the Mac community. Think of all the promotion and events that centered around OS 8. The pictures of the fireworks display over Boston Harbor tell a tale of a promotion plan in full swing.
Second. Boston '97 also marked the introduction of the G3 boxes and that too generated excitement in the Mac Community. Even if those attending wouldn't or couldn't buy one of those "Fast New Pentium Smoking Boxes," they wanted to see them, play with them, etc. Not to mention the expectation of seeing the cloners G3 boxes and all of the excitement over the CHRP/PPCP boxes that were supposed to be coming out soon.
Third. Boston '97 also marked Steve Jobs' first keynote after ascending to the throne of Apple CEO, interim or no, and people were expecting "Big Things" from Mr. Jobs and they weren't disappointed. Mr. Jobs' appearance at the keynote was certain to draw a large crowd, even if the other factors weren't present.
Fourth. The news generated at the keynote: New Board, Microsoft Deal, etc.; that "Grand Slam Home Run" as RFI called it; attracted even more last minute attendees. They wanted to see what it was all about.
These four factors alone made Boston '97 unique. Comparing MWNY to Boston '97 is like comparing the launch of Win95 to the launch of Win98. If MWNY had comparable expectations and events, it didn't, then the comparisons would be more fair. And if Boston '97 was held in New York, the crowds probably would have been bigger. It's a simple truth.
While MWNY had the iMac, it wasn't supposed to have Mr. Jobs or any other Boston '97 type "Big News." Something that we had reported prior to the Expo. Even still, with all of that "working against MWNY," the first day deemed MWNY a "Success" and not just by RFI. After the keynote, Morgan saw a lot of "Creative World" and Wall Street types walking the floor of the Expo and heading to the conferences. He saw them in the Apple VIP line before the keynote as well. And more were seen in the general lines.
After the keynote, the "Media Stars" of Wall Street were standing outside the Expo exhibits entrance doing their reports. Unlike Boston '97 the media outlets could send their stars to the Expo without buggy lugging them up to Boston along with a satellite truck and all the other baggage. It was a simple trip across town. And, after their covering the Expo they still had time to cover the other developments in the markets and do their follow-up live in the studio.
The Wall Street types could have caught the keynote, wandered around and still have kept their lunch and dinner reservations after taking care of business at the office before the markets closed.
The "Creative World" types could also go from home to the Expo to the office and still go back to the Expo, as well as the parties and still not have to worry about being too far away from the office and their work.
For better or worse, New York is the Media and Financial Capital of the World. Sorry.
But, the numbers were just their major complaint, and we explained why Boston '97 was "unique" and could not be used as a fair comparison for MWNY. The other arguments were more specious.
RFI hates to say this, but the move back to Boston was preordained a long time ago. And a lot of the complaints about MWNY are attempts to rationalize the move back to Boston rather than being soundly based. We just wanted to let the air out of the claims, etc., that MWNY was not a "Success."
When we were talking with people at the parties on Wednesday night most of those who were complaining about MWNY and boosting the move back to Boston were completely ignorant of the media coverage of the first day of MWNY. And when some were apprised of the coverage they said they didn't care. Stupid. Really stupid. Lest you weren't aware, CNN's Moneyline with Lou Dobbs (aired on CNN and CNNfn) had the title of their coverage of MWNY as "Apple's Revenge." It covered Mr. Jobs' keynote, the news from the keynote and about Apple's renewed prospects; as well as the iMac. You can't buy coverage like that. CNN's Steve Young was the reporter (a CNN "Star") and he not only had footage from the Expo but was also in the studio to do a live follow-up; along with commentary from Mr. Dobbs. Again, you can't buy coverage like that.
There was also favorable coverage on Fox News Channel's financial news, CNBC and the local major media network outlets. You know, the flagship stations of the major broadcast networks. Those "small" stations like: ABC, CBS, NBC, Fox.....
On balance, even the initial coverage by The Wall Street Journal was quite favorable. And given their tie-in with CNBC we expected no less.
But, RFI has a question to ask: Would all of those "stars" have been covering Boston '98 "live?" We don¼t think so. A lot of the journalists, media, etc. scrambled to Boston '97 after the keynote's news was made as they were caught flat footed. Well, we'll see who the "faces" are at MacWorld Boston '99. Maybe there will be another unique event there like MacWorld Boston '97. But, we're not going to hold our breath waiting.
A lot of those who perceived the "success" of MWNY got those impressions from not only the first day of the Expo but also from the "success" of the Apple Party at Webster Hall. We kept hearing comments from people about what a "Huge Success" it was and that they were well pleased with the results. Also, RFI had to admit that even though we had low expectations for MWNY it was a "Success" and commended people for a job well done. You see, we are one of the members of that "Tough Crowd." Our main nit to pick was the lack of "Creative World" content for the "Pro" and "Creative World" types. Even still, it was a success.
And, the other events that we attended at the Expo were also successes. And, we weren't hearing a lot of complaints about MWNY that others have been airing. And, the people we didn't hear complaining are those to whom we really listen to when they speak, whisper, etc.
Why did we spend so much time on the "MWNY Success?" Ah! There's the rub! It's a lead in to an impression and feeling that we picked up on at MWNY. Your patience will have been rewarded if this impression proves out.
While RFI has nothing concrete to hang our hats on as far as the following goes, it's an impression that we received while at MWNY. Just as Apple is "splitting" its product line into "Two Tracks: Consumer and Pro," it is also likely that MacWorld Expo might follow the same course: Consumer and Pro. Let's be totally honest here. The "Expo Needs" of the Consumer Market vary greatly from the needs of the "Pro/Creative World." As Apple moves towards a dual track product strategy it can't attempt to be an "All-In-One" Expo. Attempting to do so would dilute its focus.
RFI got the impression that while the Expo might be moving back to Boston for '99, that there might be a "Pro Expo" in New York that would specifically address the needs of the "Pro" and "Creative World" types that would be more focused. You see, except for creating content for the consumer line, the "Pros" and "Creatives" have little interest in a lot of the "general" fare of the Expo. Other than the workshops, etc., they want the products that are specific to them and their needs.
We can already hear the groans from vendors, exhibitors, and attendees alike: "Oh God! Not another show!" Depends on how you look at it we guess. How many: Servers, Workstations, RIPs, etc. does the "Average MacWorld Expo" attendee actually buy? The high end software? How much time, effort and resources do exhibitors "waste" by telling some 14 year old all about their $15,000+ Workstation, Server, etc.? How many "Consumer Vendors" watch as "Pros" walk by their booth without a second glance? On balance, wouldn't the vendors specifically targeting the Mac platform prefer to target their actual market? And the reply: "That's what Seybold is for" doesn't hold water.
While RFI is not currently expecting this to come to pass, we wouldn't be surprised if there was a Macworld type "event" in New York in '99. Those who felt that MWNY was a "Success" appear to desire such an event. We'll have to wait and see.
Remember, Apple is splitting its product line into two tracks, Consumer and Pro. While the "Pros" might be potential customers for the Consumer line, for the most part the Consumers are not potential customers for the Pro line. It's as simple as that. It becomes a matter of "focus."
This isn't something that RFI will use as an "I Told You So," but it is the impression we received from people who believed that MWNY was a "Success." And, if it's the seed of an idea that RFI has planted in people's minds, so be it. However, Wednesday night there was "I'd like to..." talk amongst those who were impressed by the "success." So, that "seed" had already been planted and germinated. Now, all they have to do is convince Apple, MacWorld, et al....
Enough said.
The title was a double entendre as it meant that not only will the iMac sell in the market but it's also going to be the central focus of an Apple ad campaign in the prime time markets. RFI had previously mentioned reports that Apple had bought a year's time on "The Wonderful World of Disney," although we weren't able to lock it down, but it also appears that the iMac "Commercial" will be appearing on other prime slots that will target consumers and entice them to check it out. We might all get sick and tired of seeing that commercial by the time it's all said and done.
Yes, RFI believes that with the proper ad campaign Apple will be able to hit its targets for iMac sales, but the problems remain as to whether Apple will be able to make as many as the demand needs. But, that's a separate topic. Seems the ramp up is hitting availability of other products; like the PB G3 292, etc.
The excitement over the iMac will cause a lot of initial sales even though there are others who are questioning the demand. So be it.
Granted, RFI still has reservations about the iMac and its long term appeal but the preliminary indications are that Apple will easily clear those internal numbers. However, some are getting too exuberant over the number of iMacs that will be sold in CY 4Q/1Q '99.
When the Disney announcements, blast.com and Disney software, were made at MWNY a lot of people yawned and downplayed its impact. Others said that RFI's reports of Disney deals were sizzle and no steak. RFI stated, that those announcements were only the first salvos and more were to come. And, there was no announcement made about any Apple advertising on "The Wonderful World of Disney" ã yet. But that commercial that Mr. Jobs showed at the keynote was tailored for the "Wonderful World of Disney", and Disney Channel(s) audiences. Even Toon Disney. The kids would love it as it would make them feel "empowered" over adults.
Even as MWNY wound down RFI was confident that there would be further developments vis-a-vis Apple and Disney and we weren't disappointed. No sooner had the week of 13 July started then the following content appeared on the MSNBC Internet site:
http://www.msnbc.com/news/178806.asp
It's no harm to Apple and good news for Disney. In fact, one could state that it was mutually beneficial for both parties. But, even this is not all that RFI suspects and expects from the Apple and Disney relationship.
But, let's go back to the announcements that were made at MWNY, shall we? A lot of people downplayed the blast.com announcements as well as the Disney software that was coming to the Mac as a result of the iMac. RFI suspects that a lot of those 177 titles were announced more as a result of the "Disney Deal" than the iMac. A lot of people might have thought: "If Disney and Mattel are going to support the Mac, then...."
Makes for a simple explanation, no? And, this only reinforces the notion that those who knew about "Columbus" boxes (plural) weren't the targets of some huge disinformation campaign to get them off the track of the iMac. It's as simple as that.
The reports that the game "Unreal" was specifically optimized for the iMac could not have been completed between 6 May and 6 Jul 98. And yes, we know that Disney doesn't make "Unreal." We're making a point.
Yes, RFI suspects and expects more developments in the Apple and Disney relationship even though the basis will be (for now) on the Consumer (iMac/eBook) and "Pro" boxes.
Apparently the ramp up for the iMac launch are effecting other product lines and the "PowerBook Supply Problems" might not be over just yet. RFI received a report from an Apple Store customer who ordered a PB G3 292 on 5 Jul 98. When they were checking on the status of their order, first they were told that it would be pushed back 30 days. Then, they were informed that the shipping date was changed to "indefinite." While this might be a problem with the availability of certain components for the PB 292, RFI suspects that these availability problems for the PowerBooks and other lines are more due to the iMac production ramp up than anything else. And, Apple does not have the "bandwidth" to handle the demand for the current and future lines while trying to meet the supply demands for the iMac¼s launch.
One aspect of the iMac launch that has gone all but unreported in the glow of iMacWorld is that the initial launch date was supposed to be 01 Aug 98. Then, it slipped to 6 - 7 Aug 98. At the keynote, Mr. Jobs gave the launch date of 15 Aug 98. If Apple is going to meet the "Back to School" demand they cannot let the date slip any farther. Yes, there are a lot of pre-orders but a lot of those pre-orders were based on the belief that they would be arriving before Johnny/Jane would be headed back off to school.
This is not a minor issue and it's something that we're going to try and keep a close eye on. If the launch date slips much past 15 Aug 98 then the potential impacts on Apple's 4Q earnings could be substantial.
During the 3Q Apple Earnings conference call this issue was clarified that the models that were/are constrained were the BTO configurations. So, even though Apple is using most of its bandwidth for the ramp up of the iMac, the availability problems were addressed and solved. And since RFI has no reason to doubt Mr. Anderson's statements, this has become a non-issue.
Already there's a lot of inflation going on about Apple's 4Q earnings and the iMacWorld detritus still isn't buried too deep at the Freshkills Landfill. RFI has been hearing reports that some are already talking about a million units being shipped in 4Q (including iMacs) as well as talking "Triple Digit Earnings." This is insane. Apple 4Q ends at the end of September and that means that Apple would not only have to sell its remaining G3 inventory, totally resolve the PowerBook supply problems, roll out the iMac in sufficient quantity to meet demand, but would also have to ship those "Speed Bumped" DT/MT and PowerBooks all before the end of the September. Impossible? In theory, no. Probable? Not as far as we're concerned. It would be a pleasant surprise, for: us, The Street, Apple's Vendors, etc. but we're not expecting it.
RFI does not know why people are setting these lofty expectations for Apple's 4Q but it's ridiculous. Why set the bar so high only to see Apple fail to clear the bar or hit the bar and fall to the ground? We don't know. Currently, we're putting it down to exuberance and excitement.
Yes, Apple's 4Q earnings will benefit from the initial sales of the iMac and Apple's 1Q '99 will benefit as well. But, to expect Apple to ship 1 million units total in its 4Q is unrealistic. To expect Apple to ship 1 million+ units in 1Q '99 is also unrealistic. Possible? Maybe. Probable? Not likely. It doesn't have the bandwidth to do that.
RFI is expecting a pop in Apple's earnings over the next two quarters as a result of the iMac but we're not going to get irrationally exuberant over them just yet. RFI would be happy with 38¢ EPS in 3Q and 50¢ EPS (diluted) in 4Q. Anything more would be icing on the cake.
Yes, Apple has new hardware designs and when they are introduced to the markets the public will be suitably impressed. Jonathan might even get a design award for the iMac and the new boxes. And, it will also leave the other box makers trying to see how they can respond without being open to charges of being a "Me Too!" copycat.
But, besides the new designs, the more pressing concerns for the "Creative World" and "Pro" types are what the boxes will do. What features they will have and whether they address their needs. And, Q1 '99 (CY) is still a long way off for them. They are making noises about those PCI slot numbers and want the condition to be fixed pronto. And, a lot are none too happy that the 9600/350 they bought less than 6 months ago won't run Mac OS X, etc.
Therefore, this is another issue that Apple needs to address as soon as the iMacs are rolling out the doors and they can turn their attention to other things.
There are a lot of items that we left on the cutting room floor but we might pick them up and put them out when things become more clear and further information has been developed. The entire basis of this report was to explain why RFI deemed MWNY a "Success" even though there are those who are downplaying its success and even saying that it wasn¼t a success. 20% fewer attendees from Boston '97? With no "factors" like Boston '97? 40% fewer exhibitors? Is that adjusted for the disappearance of the cloners like: UMAX, Motorola, PowerComputing, etc.? Adjusted for those companies that specifically attended Boston '97 because of the cloners and the roll out of OS 8? We don't think so. But there are lies, damn lies, and statistics.
Yes, RFI believes that MWNY was a "Success" and while we have our concerns about Apple, its Strategy and the execution thereof, we're still long term Bullish on Apple's prospects as long as the company addresses the competitive threats that are already over the horizon and heading straight towards not only Apple but the entire Tech Sector.
Enough said.
Apple Recon
