From time to time, in the heat of passion there is a glimmer of truth that peeks through. In this case, it's hard to argue with the numbers.

A cold dose of reality hit the Apple camp in Cupertino in the past few weeks, as the company released lower-than-expected third quarter earnings estimates. As soon as the earnings estimates were released on September 29th, after-hours trading brought the MacStock to its knees, losing 50 percent of its value in a matter of hours.The stock continues its downward spiral this week, with a total of 68 percent shaved off its value in the last three weeks.

Fred Anderson, Chief Financial Officer of Apple said, "Three factors contributed to our revenues and earnings coming in below expectations. First, we experienced lower than expected September sales due to a business slowdown in all geographies. Second, our Education sales, which normally peak during September, were lower than expected. And third, our Power Mac G4 Cube is off to a slower than expected start, resulting in revenues below expectations. We are currently re-evaluating our plans going forward, and will provide lower growth targets for next quarter and the next fiscal year when we announce our final results on October 18."

Usually-chirpy Apple CEO Steve Jobs backpedaled slightly when he weighed in with his explanation in a prepared statement: "We've clearly hit a speedbump, which will result in our earning, before investment gains, approximately $110 million rather than the expected $165 million for the September quarter." But then, Jobs perked up to his usual self: "Though this slowdown is disappointing, we have so many wonderful new products and programs in the pipeline -- including Mac OS X early next year -- and remain positive about our future.''

Here's What I Think
From time to time, in the heat of passion there is a glimmer of truth that peeks through. In this case, it's hard to argue with the numbers. Despite the exhortations of Mac fans, the beautiful Cube isn't selling as well as Apple had hoped, and that's pummeling the unrealistic expectations of Apple officials. Another fact that seems to be overlooked by those who choose to swallow each Apple press release as if it's the word of God: OS X is late. How late? Apple has been promising a modern operating system for many years now, and with each promise comes a crushing disappointment. Each time the Mac faithful have been sorely disappointed. Piling on the hard feelings is Apple's Microsoft-like greed, charging eager Mac users $30 for a beta copy of OS X.

It's interesting that all seems so rosy when Jobs is on stage, demonstrating all his incredible, insanely great and stunning products, but when the cold hard numbers are released, that carnival-like MacAtmosphere grinds to a screeching halt. Maybe those who have taken the plunge into Mac hardware, software and its surrounding quasi-religious culture will buy into just about anything Steve Jobs says, but the same is not true for bottom-line oriented money managers. Seems like when there are billions of dollars at stake, the truth will invariably percolate to the top, for all to see. And taking a look at Mac's stock today, that truth isn't pretty.

It reminds me of the time a couple of years ago when Jobs appeared in the hot seat of Louis Rukeyser's Wall Street Week program on PBS. Clearly uncomfortable in the presence of stock experts and those who deal in objective numbers, Jobs started off tentatively taking about Apple's products and then suddenly went blank, stammering about how he forgot what he was going to say. Here was an audience that wasn't buffaloed by fantasy and snake oil. These people were interested in real data. This was an arena that probably felt quite different from the usual MacWorld love feast to which the Cheerleader From Cupertino usually preaches.

Why is this happening to Apple? First of all, you can only go so far with pretty designs, a charismatic CEO, broken promises and the support of a few great digital video editing manufacturers like Avid and Media 100. Second, despite all the fabulous design that goes into Mac products, there just aren't enough people using them. Third, Moore's Law seems to mean nothing to dead-on-its-feet chipmaker Motorola -- it's been a year since it introduced a faster processor for Apple, a fact that's even more painfully obvious when investors and users see AMD and Intel leapfrogging each other with ever-faster chips on a quarterly basis. If you already have a Mac, why should you spend thousands on a new one with the same processor under the hood? Even Apple's dual-chip gambit rings hollow because of the current Mac OS's weak-to-nonexistent support for multiprocessing. And fourth, because of the Mac's small percentage of the computer user base, developers are reluctant to spend the time and effort on Mac products that they do with PC offerings. Again, it has to do with numbers. If you were a developer, which platform would you rather write software for -- one that serves almost everyone who has a computer, or one whose users amount to only about a tenth of that?

Of course, the biggest developers will continue to support Apple, and are able to write releases of software in both Mac and PC versions. But some developers, including those who write drivers for various peripherals, are faced with a decision: Write native code for OS X to take advantage of all its hefty UNIX features, or concentrate on Windows, with its huge majority of the user base, where there is already a well-established and extremely stable platform with all the features of OS X and more. You can bet they all are carefully watching the numbers associated with Apple. Slow sales of any Mac products do not bode well for the loyalty of Mac software writers. Some will jump ship, fed up with the exaggerated salesmanship of the Apple PR machine. Some wonder if OS X is going to miss yet another promised ship date, which is now rumored to be pushing toward May of 2001.

Is the Mac party over? Not yet. Mac OS X has tremendous potential. But it's a promise of an operating system for tomorrow, not today. In the Windows camp, there are lots of promises floating around, too, like a 64-bit version of Windows 2000 that will be available soon, perhaps before the final version of OS X is released. And already, a parade of software code-writers have vowed to write 64-bit applications that will take advantage of this new firepower. The upcoming battle between the operating systems is going to be especially interesting because the PC side has numerous hardware advantages -- companies competing against each other with huge R&D budgets. Lined up against that PC juggernaut is one manufacturer, Apple. It's a classic David vs. Goliath battle, where there are a number of Goliaths lined up against one David. Not an enviable position.

Just like those thousands of disgruntled investors, I say: Do the math. Look at reality.

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Charlie White has been writing about new media and digital video since it was the laughingstock of the television industry. A technology journalist and columnist for the past seven years, White is also an Emmy-winning producer, video editor and shot-calling PBS TV director. Talk back -- Send Chazz a note at cwhite@digitalmedianet.com.

 

Want a second opinion on Apple's stock troubles? Here's Digital Media Net Producer John Virata's take.