So much for the company that bragged about "less than one day of inventory" less than a year ago: Industry analysts have often complained that Apple CEO Steve Jobs' claims for his company's product don't often jibe with reality, but reality caught up with the PC alternative this week when the company announced that it would lose money for the first time in three years. But Apple's problems--coming just a few months before the release of its next-generation Mac OS X operating system--aren't just a statistically anomaly. The company will experience a net loss of over $225 million this quarter; it has 11 weeks worth of unwanted inventory clogging the channel; and a dated product line whose latest updates consist largely of new color schemes. It's not a recipe for success by any means, and the magic of Steve Jobs may have finally worn off the fairy tale that has been Apple since his return. This isn't the way Jobs wanted to launch the OS that was to have transformed the company.
Mac OS X, once known as Rhapsody, is based on the Mach kernel and Unix, a rock-solid but difficult to use operating system core. No problem, Jobs said: The company tacked a number of subsystems onto this stable base to make the OS more enticing to existing Macintosh customers. For backwards compatibility, Apple added the Classic environment, so that users can run their old Mac OS applications. For developers, Apple added a number of environments that will ease the transition, including "Cocoa," a full-blown Mac OS X environment and "Carbon," an odd halfway house between the Classic Mac environment and Cocoa. And users get what Jobs sees as the ultimate pay-off, a brand new user interface called "Aqua," that features a liquid look and bright, gel-like colors. Triumphantly demonstrated at the past few Macintosh events, Aqua has bombed with users, especially the graphics crowd, who complain about its spastic interface and bright colors, and user interface experts, who say that it's a huge step backward after years of human interface engineering at Apple. And developers are largely ignoring the native Cocoa environment, preferring to port their existing apps to Carbon instead of undertaking the massive transition to an unsure new OS that may not sell very well.
On top of all this is a schedule that's oddly reminiscent of the three-year development of Windows 2000. Rhapsody was first announced in late 1996 and expected to ship in mid to late 1997. After numerous delays, Apple now expects to deliver Mac OS X on February 24 at MacWorld/Tokyo, missing the more heavily hyped show in San Francisco by over a month. But the differences between Windows 2000 and Mac OS X are crucial: Windows 2000 has a built-in user base that was guaranteed to upgrade to the new OS over time and has secured millions of users in its first year alone. The future of Mac OS X is less clear, even given the fervent nature of Apple's fans. Most of the existing Macintosh systems out there either can't run Mac OS X, or will do so poorly. And the last thing Apple needs now is horror stories about loyal customers with systems brought to their knees by the new OS.
Meanwhile, Apple's August line-up of new PCs was uninspiring. The already underpowered iBook and iMac lines were updated with new colors and slightly different features, including a nice update to the iMovie software. Most of the aging G4 line was given dual processors, which would be wonderful if more than a handful of applications could take advantage of them; to the ancient Mac OS running these machines, the system sees only one processor, and this won't change until Mac OS X is released. Meanwhile, the creakiest product in the lineup, Apple's Powerbook, moved through the later half of 2000 completely unchanged. And the product that Apple thought to be its biggest star--the tissue box-like and virtually unexpandable G4 Cube--has been ignored by users and has sold far less than expected. Tellingly, the G4 Cube shares one potentially devastating trait with Mac OS X's Aqua interface: It was designed largely to please Steve Jobs' sense of aesthetics, and doesn't take into account whether an actual market for the product exists.
But Apple's surprise financial announcement this week, in which it admitted to a massive loss during the normally lucrative holiday season, is the company's biggest problem. Apple laid the blame on a number of factors. "We were simply not prepared to be hit with three problems simultaneously," Apple CEO Steve Jobs said. "First, Apple-specific problems of our own making which we are aggressively addressing. Two, a now widely acknowledged PC slowdown, and three, a worldwide economic slowdown." But the "PC slowdown" may be a ruse. Though some other PC makers, notably Gateway, are experiencing problems, industry researchers at IDC say that shipments of computers worldwide will grow nearly 20 percent this quarter compared with the same period last year: Only consumer-targeted PCs in the United States will experience a slowdown. The net effect is that companies that cater largely to the U.S. consumer market, such as Gateway, will have problems. And Apple competitors such as Hewlett Packard, which sell to the same markets, have had no problems keeping inventories low.
As always, Apple's answer requires employees and customers alike to "stay the course." Jobs met with employees in Cupertino this week and took the blame for this quarter's loss and the company's plummeting stock price. And Jobs hinted at a new product lineup that will replace Apple's existing products, one that will likely include a small and light notebook for business users and frequent travelers, currently a untapped niche at Apple. Jobs noted that Apple had let Dell Computer seize the strategic education market, and explained that the lack of a CDRW drive in any of the company's systems was a crucial mistake, as most Windows-based PCs now ship with this type of drive because of consumer demand. Apple will reportedly attempt to duplicate its success with iMovie by creating a new package called "iMusic," a combination MP3 player and CD recorder.
But revamping the product line will take time, and it's unclear how the company can dump 11 weeks of inventory without torching the financials for future quarters. After a few years off from press scrutiny, it appears that Apple is in the crosshairs again. What's astonishing is that it took this long, given the company's fixation on style over substance