Apple Faithful Seeking Recipe for Recovery

Times Staff Writer

In years past, Apple Computer Inc. has tantalized Wall Street, loyalists and potential customers with what one Wall Street analyst describes as a "striptease" in the weeks leading up to Macworld, the company's annual trade show in San Francisco.

A year ago, Apple's Web site promised: "Count on being blown away." Chief Executive Steve Jobs followed through by unveiling a radically redesigned iMac computer, which resembles a large snowball with a flat-panel screen growing out of it.

But this time, Apple has been mum. Perhaps it's that the company has little to buzz about.

When Jobs addresses the faithful today at Macworld, they'll be more eager to hear his strategy for stemming the company's slide at the hands of its PC-making rivals than to see splashy presentations of new computers, digital music players or other gadgets.

Apple, which introduced consumers to desktop computing, owned just 2.3% of the market in the third quarter of 2002. That's up slightly from a low point of 1.8% in the fourth quarter of 2000, but still a long way from the 9.6% it claimed in 1991.

These days, Cupertino, Calif.-based Apple even is struggling in the key education sector, where Dell Computer Corp. has made inroads with low prices and highly rated customer support.

"They need to pull some new rabbits out of the hat to get investors interested in the story again," said Ashok Kumar, technology analyst with U.S. Bancorp Piper Jaffray.

Despite an array of hit products that scoop up design awards and generate gushing reviews, Apple has been unable to shake off the role of niche player. The company founded by Jobs and Steve Wozniak in 1976 is adored by graphic designers, Web and magazine publishers, and video and photography "digerati," who swear by the professional-grade PowerMac desktops and PowerBook laptops. The iMac and eMac desktops and the iBook laptop line are favored by students and more casual users.

But computers using Microsoft Corp.'s Windows operating system and Intel Corp. chips -- a combination known in the industry as "Wintel" -- dominate the huge corporate and home markets, and Apple has been unable to make much headway.

"Apple is sold mainly to the faithful, and that pool has diminished over time," IDC industry analyst Roger Kay said. "When it has a big win with a product, its share changes by a few tenths of percentage points."

By contrast, Wintel machines made by Dell have been "leaping three, four percentage points at a crack," Kay said.

Indeed, Dell's performance offers the most vivid illustration of Wintel's dominance over Apple. Dell sold 17.2 million computers worldwide in 2001 compared with Apple's 3.2 million units and an additional 14.6 million in the first nine months of 2002 versus Apple's 2.3 million. Apple earned $65 million on revenue of $5.7 billion in the year ended Sept. 30; Dell's profit was $1.2 billion on revenue of $31.1 billion in its fiscal year, which ended Jan. 31.

Apple said its executives couldn't comment because they were preparing for Macworld.

But Apple's managers have said they plan to pursue a "digital hub" strategy, making the computer the centerpiece of the workplace or home entertainment environment. Apple desktops and laptops will control functions ranging from document storage, scheduling and wireless Internet surfing to video, music and photo storage.

"Apple is trying to take what the digital lifestyle is delivering and make it easier to access," said Steve Baker, a technology analyst with market research firm NPD in Reston, Va. "But that's where Microsoft is also headed, and everybody else is catching up."

The top-of-the-line iMac, for instance, sells for $1,999 and includes a 17-inch flat-panel screen, an 80-gigabyte hard drive and disk drive that burns CDs and DVDs. Hewlett-Packard Co. followed with its line of Media Center desktop PCs that have similar accessories plus the ability to record up to 80 hours of television shows from a cable TV connection for about $250 more.

Apple has won praise from analysts for opening retail stores in high-traffic areas since May 2001. By comparison, Wintel rival Gateway Inc. of Poway, Calif., set up many of its stores away from major shopping destinations, a factor analysts say has contributed to its recent slide.

Apple plans to open its 52nd retail store today in Pasadena, the company's seventh store in Southern California.

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