I’ve read a growing number of stories focusing on the bad timing of Apple’s gambit into brick and mortar retail sales, with many drawing on comparisons with the plight of Gateway. While no one could have foreseen the tragic events of September 11th, the handwriting was on the wall for an economic downturn and the PC recession was well underway before Apple’s first store opened. While most PC manufacturers are now forced to cut prices to the bone and throttle back production, Apple has the cash reserves to tough it out and buy some market share in this difficult economy. There is no easier time to increase percentage of sales than in a downturn. It just takes deep pockets and the capacity to tolerate some pain, all buoyed by the long term expectation of a brighter future.
I’ve read a growing number of stories focusing on the bad timing of Apple’s gambit into brick and mortar retail sales, with many drawing on comparisons with the plight of Gateway. While no one could have foreseen the tragic events of September 11th, the handwriting was on the wall for an economic downturn and the PC recession was well underway before Apple’s first store opened. While most PC manufacturers are now forced to cut prices to the bone and throttle back production, Apple has the cash reserves to tough it out and buy some market share in this difficult economy. There is no easier time to increase percentage of sales than in a downturn. It just takes deep pockets and the capacity to tolerate some pain, all buoyed by the long term expectation of a brighter future.
Cutting costs, lowering prices, stepping up advertising will allow Dell to gain an even larger percentage of PC sales. Companies without cash reserves or access to credit have no choice but to cut deeply into production and development in order to survive. Some consolidation will happen, like the merger between HP and Compaq and this will surely reduce their combined share of the market. The inevitable business failures will occur and the herd will be thinned.
Rock bottom prices have never been Apple’s forte. In order to win market share, Apple can increase spending on advertising, continue with unprofitable but highly visible retail outlets and keep on introducing great new products. Flat sales would be a miracle in this economy, it’s just a question of keeping the drop in sales smaller than everyone else’s. PowerBook prices seem just right, and I would not suggest cutting profit margins in search of new customers. The G4 PowerBook is absolutely wonderful, only lacking a superdrive and combo drive that fits. It is a showcase machine for the company and perfect for the serious user. The iBook redesign was brilliant in that it is no longer just a durable laptop for students. It has an even broader appeal for higher education and business and so does OS-X. The G4 tower is important to Apple’s core customers and is in need of a refresh or better still, a new ultra-high performance G5. In order for Apple to gain serious ground, everything hinges on an iMac replacement. Occupying the quadrant in which Apple is seriously under-performing, it’s replacement must be nothing short of ground breaking.
The deflation in prices is likely to have a de-stabilizing effect on the industry. There will be an inevitable shakeout in the LCD, drive and memory manufacturing businesses that could lead to disruptions in production and distribution. If manufacturers fail and production capacity drops, there could be spot shortages of certain components. Since Apple relies on many unique components like wide aspect-ratio LCD screens and thin slot loading drives, the company is particularly vulnerable.
Resistance to a strategy that defers profits in an attempt to buy increased market share will come from shareholders who will not be eager to feel any more pain for the promise of a better future.
