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Apple turnaround under way

After reporting several quarters of losses, the company cuts expenses, downsizes, shuffles its top executives, and finds much-needed leadership in Steve Jobs.

It's been quite a year for Apple Computer, which appears to have dug itself out of a money-losing hole.

After reporting several quarters of losses and falling revenue, the company

Steve Jobs
Steve Jobs
has cut expenses, downsized, shuffled its top executives, and found much-needed leadership in Steve Jobs, who assumed control of the hemorrhaging company last September. The Apple cofounder developed a plan for the ailing operation, in an attempt to recapture some of the glory of the once-powerful company's heyday, which breathed innovative life into what is now a thriving mecca called Silicon Valley.

Investors and consumers are feeling more upbeat about Apple's prospects, so the primary challenge that remains for the company, according to analysts, is not developing a strategy, but rather executing one. That means the company has to finish building out its product lineup with a portable PC for consumers, and make sure that the shelves are stocked with enough of the company's goods to meet demand.

"The company's business is working," said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison, noting that Apple is near the end of its market share and revenue decline. "There should be growth in Apple's top line revenue very soon, because all of the products are working together [to build confidence and grow the business again]."

"It is a simple equation," he added. "Invigorate operations and get customers excited about the products. They have done that."

Apple has launched a round of new products aimed at businesses as well as See related story: 
MS competitors bounce back consumers, including portables that feature up to a 292-MHz PowerPC processor and the first 14.1-inch display on a PowerBook; the Power Macintosh G3 "All-in-One," which includes a 15-inch monitor that is built into the system's curvy case and is intended to target the educational market with its starting price of $1,499; and the iMac, a user-friendly computer aimed at the consumer market that starts at $1,299.

As a result of introducing these products and posting better-than-expected financial results two quarters in a row, Apple also has raised Wall Street's confidence level.

Indeed, the company's stock has outpaced year-to-date gains for industry giants such as Compaq, Dell, IBM, and Hewlett-Packard. Apple shares even broke the $30-per-share threshold recently.

Also boosting Apple's outlook, Moody's Investors Service this week upgraded the computer maker's senior and subordinated debt ratings, citing a strengthening of its protection measurements during recent quarters as a result of its increased cash flow and debt reductions. Moody's also noted that Apple rebuilt its balance sheet liquidity while paying off its short-term debt.

In the midst of this turnaround, Apple's two biggest foes, Microsoft and Intel, have become tangled up in antitrust lawsuits. While Intel's legal troubles are just starting to unfold, Microsoft's legal woes may have the effect of rallying support for Apple, according to analysts.

International Data Corporation PC analyst Sean Kaldor said following the commencement of the Microsoft lawsuit that Apple should see a "slight uptick" in sales because the legal battle may give Mac users who were considering the possibility of switching to Microsoft a reason to stick with Apple--at least for the short term.

But even while Apple has come a long way on its road to recovery, some hurdles remain for the company, which still has some gaps in its strategy and financial picture. Despite ramping up with professional desktops and portables, as well as consumer desktops, the remaining piece of its development puzzle is a portable consumer computer--a laptop for the masses.

"They are executing on the software element and the hardware element, but the consumer portable is still a question," Mazzucchelli said, noting that the company should fill in that blank sometime next year.

Apple also still has to follow through with its Mac OS plan. The company has gone back and forth in recent years on whether to update its existing operating system or develop a completely new one, and has plans to release its Mac OS X at the end of 1999.

Another issue the company must grapple with is keeping up with demand for its new products. Mazzucchelli said that CompUSA consistently has been selling out of Apple's speediest PowerBook model, which was released early last month.

For the most part, however, Apple has taken great strides in rekindling its computer business and re-establishing its reputation.

"This story is getting boring," Mazzucchelli said. "We don't have to worry if Apple is going to die tomorrow."