Stung by slow sales, the Cupertino, Calif.-based computer maker is looking at options for incorporating the technology for recording CDs.
To date, Apple has focused on putting DVD drives into its computers and giving people the ability to play or edit video. However, consumers are showing a greater desire for CD-RW drives, which let them burn music CDs.
With 40 percent of PCs sold at retail packing CD-RW drives, Apple is losing "big-time sales," noted PC Data analyst Stephen Baker.
To get back into the swing, the company is evaluating Pioneer Electronics' DVD-RW drive, which is capable of recording DVDs and CDs, say sources familiar with the situation. Apple also is evaluating combo DVD/CD-RW drives, as well as standalone CD-RW, though sources would not say from which manufacturers.
The shift toward CD technology contains a whiff of high melodrama. In Apple's earnings warning Tuesday, chief executive Steve Jobs made an uncharacteristic admission: The company blundered by not offering CD rewritable drives on Macs. Months ago, when analysts pointed out that Apple was losing sales by not incorporating CD-RW technology, Apple partisans flooded chat rooms with angry, accusatory emails.
Can Apple survive the fall?
Stephen Baker, analyst, PC Data
However, he added that the company is "excited that a lot of (manufacturers) are looking at our drive because it does resolve a lot of issues and offers a lot of benefits by having all your writing and all your reading capabilities in one drive."
Apple's repositioning on CD-RW could be an important way to reinvigorate sales, particularly for the iMac. In fact, Apple may have no other choice but to offer the technology.
"The world is moving toward having a recordable device, whether it's CD or DVD, as a checklist item. And Apple has to have it in there whether it's too late or not," Baker said. "Now, for a lot of PCs over $1,000 and a lot of stuff around $800, it's basically a requirement."
Placing the wrong bet
CD-RW drives are popular for creating music CDs, either culled from consumers' existing collections or from MP3 music files downloaded from the Internet.
Apple's choice for DVD recording, DVD-RAM, is actually "more of a storage technology than for writing DVDs," Dataquest analyst Mary Craig said. In fact, only a small number of DVD players and drives can read discs written by DVD-RAM units.
Apple missed out on CD-RW because the company placed its bets on DVD. At the time the company standardized DVD drives across much of the Mac line, CD-RW had yet to take off. Apple chose video recording with DVD-RAM as an available standard on its fastest PowerMac and as an option on others.
But between the time that Apple unveiled speedier Mac models in the summer and fall of 1999, and a largely refreshed product line in July, demand for CD-RW exploded and eclipsed DVD drives and DVD-RAM.
Dataquest estimates that as many as 34 million CD-RW drives will be sold this year. DVD-RAM sales, by contrast, may top only 1 million units, based on estimates from drive makers.
Many analysts had anticipated Apple would at least offer CD-RW on some models introduced in July, but the company continued to focus on DVD playback on low-end models and DVD recording at the high end.
"How many people really, really want to write a DVD?" LeTocq said. "They may want to watch a DVD. But for main computing use, the main requirement is to create an audio CD to play in your car or wherever."
When Apple bet on DVD-RAM, it was the only game in town for DVD recording. Bickering among supporters over standards delayed competing technologies, such as DVD+RW and DVD-RW, from reaching the market.
But the first DVD-RAM drives produced 2.6GB discs, which were incompatible in nearly all DVD drives and players. This autumn, after long delays, larger-capacity 4.7GB DVD-RAM drives reached the market, with the promise of better compatibility. But production levels have been low, which frustrated Apple, said sources familiar with the situation. Panasonic supplies Apple's DVD-RAM drives.
Last month, Pioneer announced its DVD-RW drive will come out sometime during the first quarter of 2001--exactly when Apple is next expected to introduce new Macs. If Pioneer delivers as promised, its drive would be the first consumer model offering both CD and DVD recording capabilities. While cautious about Pioneer's claims, Craig said, "DVD-RW drive is backward compatible with other drives."
If Apple abandons DVD-RAM in favor of DVD-RW, the company could get a leg up on competitors, say analysts. With the first music titles now available on DVD, Apple could be the first company offering computers capable of recording both DVD and CD audio. The drive would also preserve Apple's focus on video editing and recording from digital camcorders.
"If they can get it in at the right price and the right compatibility, it fits in very nicely with a digital image kind of standard," Baker said. "You're not going to be able to record a movie from a digital camcorder to a CD. It's got to be a larger media like DVD. Apple would have that."
As a software and hardware developer focused on creative professionals, Apple is in a good position to maximize the benefits of video and audio recording, said Technology Business Research analyst Tim Deal.
If Apple can "integrate state-of-the-art music recording and editing with desktop publishing software," it will create "a one-stop shop for independent musicians," he said.
But as a new technology, Baker, Craig and LeTocq questioned whether DVD-RW would cost too much for consumer systems. That could force Apple into a compromise: combo DVD-RW/CD-RW drives on high-end Macs, combo DVD/CD-RW drives on midrange systems, and the iMac DV Special Edition and CD-RW on some other iMac models.
Either way, adding CD-RW to Macs could be a big boost for Apple at a time when the company needs to reinvigorate sales, particularly by capitalizing on existing assets.
"Apple could leverage its EarthLink agreement and provide a Web presence for Mac-created MP3s," Deal said. By tying that into "a marketing campaign that showcases Mac users' ability to record original songs, burn them to CD and then make their own music videos," Apple could create "the first end-to-end creative multimedia solution for consumers."