COMMENTARY -- You'll find plenty of gloaters in the wake of yesterday's warning from Apple Computer (Nasdaq: AAPL).
It's petty, but I can't blame them. It's easy to despise the arrogance of Steve Jobs & the pretensions of his MacFanatics.
Jobs knows that and plays off it. He's built a marketing message around it: We're Different. We're Better. We're not the rest of the world, we're in the company of Einstein and Gandhi.
And Jobs turned out to be correct. His company is different from rest the PC industry: Apple's base isn't growing as fast.
Intel (Nasdaq: INTC) warned about missing revenue, but that was confined to Europe, and most observers believe that Old World shortfall stems from lack of corporate buying.
Apple's woes are broader. Its sales are lower worldwide, and it must be a shortfall in the consumer and education markets, since the company has never sold much to businesses.
Some folks believe it's too early to predict gloom and doom, but that's not true. The turnaround is over; even Apple knows it has a fundamental problem, or else the company wouldn't promise lower guidance for not only the fourth quarter, but also all of fiscal 2001.
Most observers know the problem: Apple hasn't expanded its core audience. People have been warning about that for years, but investors in recent quarters preferred to focus on the glowing financials produced by the Jobs team.
The reality is that Jobs faced an easy comparison, as all turnaround artists do. When the company loses billions over the previous couple of years, it doesn't take much to look good.
But give Jobs credit. His management team turned Apple into the most efficient manufacturer in the PC industry. He simplified the product line and thinned the distribution channel, so buying a Mac became easier.
Just as important, he gave Mac diehards a reason to stick around. If nothing else, Jobs knows Apple's core audience, because they're like him. He gave the people slick design and easy-to-install computers. He gave them showy presentations and promised the long-needed overhaul of the Mac operating system, although that project is now years behind expectations. Still, the audience cut him slack, as they always do with Jobs.
Unfortunately, there are only so many designers and education buyers out there, and most of them aren't going to upgrade that often. Maybe the Cube looks great -- not to me, but influential reviewers such as The Wall Street Journal's Walt Mossberg like it, so what do I know? -- but not many people are going to spend $1,800 for a computer lacking a monitor and a drive for removable storage media. Especially not the ones who bought an iMac for $1,200 or less in the past couple of years.
That's Apple's biggest problem. This turnaround has only been going on for two years, and already it's losing steam, because it was based on the company's core audience and PC newbies who don't mind paying higher prices.
Stabilizing Apple was the simple part, largely because Jobs went for quick fixes like killing the clone market, instead of looking at long term solutions that would grow the company's customer base. Jobs received a $45 million Gulfstream jet for all that, and millions of options that currently sit deeper underwater than Atlantis.
No one should be surprised by Jobs' strategy, because he has never grown beyond a core constituency with any of his companies. He didn't do it with Apple the first time around, which is one reason he ultimately lost a power struggle with John Sculley. He didn't do it with NeXT, an operation that only made lots of money for Jobs when he suckered Gilbert Amelio into shelling out $400 million to buy it. He hasn't done it with Pixar (Nasdaq: PIXR), whose main audience is simply the one provided by Disney.
Contrast that with another CEO renowned for a corporate turnaround. Lou Gerstner latched onto a lowly-regarded hodgepodge of offerings -- technology services and consulting -- and built that into Big Blue's main business. IBM Global Services continues to grow at a strong clip for a multi-billion dollar business, and at its current rate would surpass hardware as IBM's largest division in the not-too-distant future.
Granted, none of the major PC makers are posting growth like they did a few years ago. But they have options in other areas.
And what does Apple have? OS X will generate huge revenues as the current base upgrades, but no one outside of the Mac Horde believes the new operating system will convince enterprises to abandon whatever iteration of Unix or Windows they're using. And anyone using or considering Linux isn't likely to suddenly switch to a closed, proprietary operating system.
Apple promises "wonderful" products beyond OS X, but if Jobs' history is any guide, it will be merely another line of cool and snazzy items for your desktop and laptop.
That's a dead end, which is why every other major computer vendor is pursuing a different strategy. "Beyond the Box" initiatives already generate a significant portion of revenue for Gateway (NYSE: GTW). Dell (Nasdaq: DELL) is driving hard in enterprise areas like servers, storage networking and even e-commerce consulting. Compaq (NYSE: CPQ) has at least the potential for something huge because of the ex-Digital business.
Meanwhile, Apple offers Cubes. The plastic casing has lines that the company says are production effects. They look like cracks. 22GO>