Latest Move Rekindles Debate About Apple's Future

Is Apple Computer looking for an alternative business focus in case its computer-driven market share and financials continue to plunge? That's a question industry analysts are debating following Apple's poor quarterly results and the company's long-awaited music service announcement on Monday.
Is Apple Computer Inc. hedging its bets with this week's announcement that the company is premiering a music downloading service? Could Apple be looking for an alternative business focus in case its computer-driven market share and financials continue to plunge?

That's a question industry analysts are debating in light of another dismal quarterly profits announcement that was followed Monday with Apple's long-awaited music service announcement.

"They're hedging their bets and... it's pretty smart," says Rob Enderle, an analyst at Giga Information Group. "Their desktop numbers cratered. Their first quarter numbers are really ugly...They kind of figured if there's other stuff they could do, then they've got an exit strategy if their computer market declines. It gives them something else to wrap their arms around."

Enderle is so concerned with Apple's performance and future that he's telling Giga's clients that now is the time for the enterprise to let go of the Apple platform.

"I think it's possible to save [Apple], but it's not clear if it's possible to save them as a hardware and software company," says Enderle. "I am telling clients to get off the platform. It won't get any easier to get off it. Before, there were people who said, 'If you take away my Apple, I'll quit.' In this market, that's not much of a threat."

But Apple, which may tout a tiny market share these days but still holds onto a devoted following of believers, is far from throwing in the towel, according to other analysts.

"It's an old story," says Michael Gartenberg, a research director at Jupiter Research, an arm of Jupitermedia, which owns Datamation. "Conventional wisdom has long dictated that people should be moving away from Apple. But that would be an incorrect analysis. Apple remains very, very much viable.

"If I had a dollar for every time someone was concerned about Apple's numbers and issued doom and gloom predictions, I'd probably be able to retire right now, adds Gartenberg. "Apple is certainly not on the brink of going out of business or getting out of the market."

Apple spokesmen declined to be interviewed for this story.

The Cuptertino, Calif.-based PC maker has been on a bumpy ride recently. Less than two weeks ago, the company announced that quarterly profits fell 65%, but it still beat Wall Street's dismal predictions, largely thanks to strong sales of pricey laptops. For the past three months, Apple had a net income of $14 million, or 4 cents a share. In the same time span a year ago, the company pulled in a net income of $40 million, or 11 cents a share.

Dan Kusnetzky, a program vice president of system software research at industry analyst firm IDC, says Apple has shown a 'gradual decline' over the past four or five years. "Their market share has declined every year for the past five. If you project out the trend lines, Linux will probably pass the Mac OS in terms of raw paid shipments sometime this year. If Apple continues to decline as they are and Linux continues to grow as fast as it's growing, we expect Linux to be the number two by the end of this year."

Kusnetzky, however, says he would never recommend that a client get off or stay on a particular platform.

"They're facing competition from all sides and they will need to address that," adds Kusnetzky. "Saying, 'We have a beautiful interface and a wealth of software,' may just not be enough. They do face their challenges but I wouldn't declare them dead yet. It can take decades to play itself out totally when you look at technology like this."

Apple's announcement this week adds some marketing muscle behind one of the company's most recent successes - its iPod player. The music downloading service is aimed at competing with both the legal and the illegal file sharing sites that have taken the Net by storm. The new service, named iTunes Music Store, is being automatically included with the third-generation iPod player.

Charles Smulders, vice president of client platforms at Gartner Inc., says he envisions Apple moving in a direction where the company is offering more devices and more connectivity between its devices.

"They're moving away from just being a computer company," says Smulders. "Apple continues to evolve... We continue to believe it's a solution that meets the needs of certain sets of clients. We don't recommend it for broadstream adoption."

Where Apple still is holding on strong is in markets like graphics, media and printing. The Mac has long outshined the PC here and retains a firm grip on its loyal followers in these camps.

"In our business, we'd have jobs we couldn't run without the Macs," says Mike Riley, chief scientist of emerging technologies at Chicago-based R.R. Donnelley & Sons. "Because of font issues or application file formats that operate primarily on Apple, we couldn't work without them... The Mac platform is engrained in the publishing industry..."

But running an island of Macs in a sea of PCs can be a frustrating and an expensive proposition.

At Wallace Computer Services, Inc., a print management products and services company based in Lisle, Ill., Macs, and the workers who run them, have become an island unto themselves.

"They're like the orphaned children of our corporation," says Wallace's Russ Schadd, a network specialist, who notes that they run more than 3,000 Wintel desktops and fewer than 100 Macs. "Our helpdesk isn't even geared to support them... For a company that has so few, it is a big expense."

And Schadd says even though workers had to create a special group just to deal with Mac-related helpdesk issues, Wallace has no plans to get off the Apple platform. "The commercial press environment probably couldn't function without them," he says.

But Gordon Haff, a senior analyst at Illuminata, Inc., an industry analyst group based in Nashua, N.H., says a growing number of companies may be feeling the pressure to get off the Macs.

"IT everywhere is looking to minimize the second- and third-tier platforms it has to support," says Haff. "Apple is clearly a different environment than what is running in most every IT shop... When you have five graphic artists still using Apples, there will be continued pressure to get off that little island of Applehood."






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