Apple Bull's Rebuttal
Louis Corrigan ([email protected])

As expected, David had an easy time shaking this Apple tree and making it Bear fruit. The company's market share did indeed slip from 5.7% worldwide in 1996 to just 3.6% in 1997, with that number dropping to 2.6% in the first quarter of this year. Ouch. The U.S. share is only slightly better, down from 7.4% in '96 to 4.6% in '97 and 3.3% last quarter. Double ouch. Maybe it's time to just chop up what's left and stick it in a pie?

David is also right about the directors' lack of commitment. It was a smart move to reward directors not with cash (as in the past) but with stock options that exercise at $23, including a bunch that vest only after four years. Still, these guys do need to actually buy some shares.

Yet while there's no doubt that Apple is a risky investment, most turnarounds are. Apple is even more risky now that it's already doubled in price this year. But David has offered you the big picture (Wintel Rules) without really looking at Apple's recent developments as steps in a turnaround process.

Apple was hemorrhaging. Jobs has stopped the bleeding by paring the company back while shoring up its core support in the graphics/publishing sector. That was a triply smart move because it's one area where the Mac very clearly can differentiate itself from Wintel. It's also a quite profitable niche -- just what a money-losing company needs. And even this little bit of good news has crucial value in convincing would-be buyers and software developers that Apple just might survive after all.

The result is that the average revenue per Mac unit sold actually increased 6% in the first quarter versus the year-ago period. If you check with PC vendors, I believe you'll find that all have experienced declining average selling prices, even the spectacular, high-end focused Dell. Apple sees gross margins on the G3 line holding steady over the next couple of quarters. Plus, the G3 accounted for 21% of unit sales in the first quarter -- even though they started shipping with just over half the quarter to go. Talk about the contribution of new products to overall sales!

The G3 is clearly designed to buy the company time... to roll out an under $1,000 entry this fall... to fine tune the next generation Rhapsody operating system for the server market... and to figure out how to utilize that great brand that David mentioned.

Frankly, I don't think David's idea of an Apple branded Wintel PC is that absurd... if all else fails. Sure, it would be depressing, but it's not a bad backup strategy. Still, I think Apple can and will do better. Why? Apple is still among the very best in the world at making consumer-oriented software. For those employees left at Apple, hubris has been replaced by competitive hunger. Finally, given the Justice Department investigation, the last thing Microsoft needs is for Apple to go kaput. Apple may be up on the wire, but when it has its top competitor pulling for it, it is working with the kind of safety net that most companies never enjoy.

Next: The Bear Responds