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Technology > Tech Biz
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Apple: Strong company, lousy investment?
Apple's product offering has never been better. But operational snags spell trouble if not righted.
July 12, 2004: 3:13 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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SAN FRANCISCO (CNN/Money) - By all accounts, it's been a great first half of the year for Apple.

Its stock price has been cresting along near its 52-week high, all changes in analyst coverage for the year thus far have been upgrades, and the company just announced that it is going international with its hot new iPod flavor, the Mini.

I hate to rain on a parade. But based on my research and a sampling of observer opinions I solicited for this article, I think some dark days lie ahead for the wizards of Cupertino.

A tough second half?

"In some sense they've never been better technologically than right now," says Roger Kay, an analyst with IDC. "But from a financial and market-share perspective, they've been floating down."

The company is scheduled to report its third-quarter earnings on Tuesday. Right now, the short interest in this stock is relatively low -- roughly 3 percent of the float. And with the stock's recent upward trajectory, that's a smart move. However, I think we'll see the short percentage shoot up pretty soon. Several factors bode ill for the company.

"This is going to be a tough second half of the year for Apple," says Rob Enderle, principal analyst with the Enderle Group. "No matter where you look, it's stormy clouds."

Apple is under pressure from many directions. First and foremost, it's having difficulty with operations, as witnessed by the recent announcement that the company will delay the launch of its new iMac computers to September from the original target of July.

This two-month slip is crucial -- it means that Apple will not have new products on the shelf for the back-to-school shopping season. For a company that prides itself in part on the success it enjoys in the educational market, this is a costly gaffe.

Second, and this is partly another operational concern, the Mini iPod model will launch internationally in a couple of weeks. Why is this a problem? Because there's a two-month waiting list to get the units in the United States. Apple's competitors are ready to pounce, to put their own iPod-like devices into the hands of consumers who aren't willing to wait for Apple to get on the stick. Dell's DJ device is already available, and Sony's new Network Walkman will be available this fall.

Solutions

Steve Jobs needs to do two things quickly to put his company back on track.

First, he needs to decide whether he wants to be the CEO of Apple or the CEO of Pixar -- each of the companies deserves a full-time top boss. I wrote a while back that Jobs needed to bring on a co-CEO to help him with the operational side of Apple so he could stick to the vision thing, but he hasn't done that.

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Second, he needs to realize the insidious attitude developing within the company that only the employees working on the consumer electronics side are on the upward track.

Apple's computer division is suffering from lack of operational stewardship and cultural malaise. Some companywide memos reminding everyone that the computer side contributes 60 percent of the revenue would help.

Now, I've been accused of beating up on Apple in the past, and that's not my intention here. The company has hit a rough patch, and all companies do.

But even if the firm reports a solid quarter tomorrow, I'm no longer bullish on the short-term prospects for the firm, unless Jobs makes some decisions about the company -- starting at the top.


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