November 10, 1997 7:00 PM PST

Apple's new plan for profits

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Monday a big day for Apple

November 7, 1997
CUPERTINO, California--At least it's a start.

Apple Computer (AAPL) today unveiled a new strategy for getting products into customers' hands today, launching a newly minted e-commerce area on its Web site that offers build-to-order computers.

But will these latest initiatives make significant See related story: Power Macs, sales plan unveiled progress toward shoring up Apple's bottom line, given that the struggling computer maker has been hit with multimillion-dollar losses, declining revenues, and shrinking market share?

Analysts on hand for today's much-hyped press conference here were somewhat skeptical of Apple's announcements.

"All of these announcements are incremental things that have been packaged well," said Daniel Kunstler, an analyst with J.P. Morgan Securities. "These are necessary steps that the company had to take, but it's not sufficient."

BancAmerica Robertson Stephens analyst Brett Rekas sounded a similar note. "They're finally trying to do what they need to do," he said. "But can these guys execute? We'll have to see."

Investors, who eagerly anticipated a significant announcement, initially bid up Apple shares nearly 10 percent, shooting the stock up as high as 21-1/2 in morning trading. But by the end of the day, shares fell over 5 percent to close at 18-11/16, down 1-1/16 over Friday.

Apple is banking at least some of its future on its new e-commerce feature, dubbed Apple Store, which allows customers to order items in its latest product line, the Power Mac G3 series, directly from the computer maker. Customers will be able to select from among three categories of systems and will have the option of custom-building a computer.

At the press conference, Apple touted its G3 series of computers as having better performance than rival computers loaded with Intel's Pentium II chip.

Analysts pointed out that Apple's move to offer direct sales with its G3 line will not rob resellers. "[Apple's] entire distribution system was in shambles," Kunstler said. "This was a way to rebuild it."

However, he cautioned, the strategy is "no silver bullet."

Apple, which has had a spotty record in gauging its production needs, is nevertheless expected to benefit from the build-to-order effort.

Kunstler said this business plan should be successful in cutting down on inventory, similar to the method used by competitor Dell (DELL).

Last year, Apple found itself stuck with a sizable load of excess Performa computers in its fiscal first quarter, after its Christmas selling season didn't pan out as expected. The company found U.S. sales of its Performa line came in 35 percent below Apple's target for that quarter.

Despite their general wariness, analysts gave high marks to Apple cofounder and interim CEO Steve Jobs on today's presentation. "No one puts on a show like this guy," Kunstler noted.

A large photo of Michael Dell, co-founder and CEO of the direct PC vendor, loomed behind Jobs as he spoke of how Apple would go after the Texas company's market. As a preview of a new commercial designed to target Dell was shown on a screen above the stage, Jobs said: "We're coming after you, buddy."

Jobs's remarks come after a recent industry conference in which Dell revealed what he would do if he were running Apple: "I'd shut it down and give the money back to shareholders," he was quoted as saying.

Meanwhile, Michael France, senior partner with reseller Mac Center, said Apple's e-commerce site will not compete on pricing with his products.

"Their idea was to make e-commerce neutral to the channel. Their price points won't conflict with ours," France said. "This move by them was all about giving their customers choice. Apple has an eroded reseller base and so they have to find ways of giving their customers information and places to buy machines."

 

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