Bad Omens and High Stakes at Macworld

With plummeting sales and stacks of unsold Cubes, Jobs & Co. needs a hit at this year's Apple confab. A titanium PowerBook could be it

By Charles Haddad

It was as if some pirate from Treasure Island had left me the dreaded black spot -- an omen of doom. Only in this case the sign was a faded Apple Computer rainbow logo, stuck to a plastic trash bin. I immediately recoiled, especially since I was trying to write this column at the time. "What's that doing there?" I asked the poor maintenance man who had come to empty the bins. He didn't speak English and slunk backwards out the door, never taking his eye off me.

You can't blame me for being a bit paranoid these days. In the past week, Apple's downturn has become a nosedive. Its sales plummeted 40% in the first two weeks of December, according to preliminary data released by PC Data. The decline was twice as sharp as for the computer industry as a whole. With unsold Macs piling up in warehouses, Apple slashed prices on its current models -- without announcing any new computers to replace them. Usually companies do it the other way round. No doubt Apple isn't swelling with pride about this.


  These ominous signs are appearing as the Mac industry gathers for its biggest annual convention in San Francisco this week. Called Macworld, the show runs through Jan. 12. Attendees include not only Apple's rank-and-file but tens of thousands of Mac developers, vendors, and enthusiasts. What makes this show more important than the summer Macworld held in New York is that it takes place in Apple's own backyard, ground zero of the fiercely loyal Mac community.

As usual, Apple CEO Steve Jobs kicked off the show with "a bang," as he put it in his keynote address. He surprised everyone with a new PowerBook that, using a titanium chassi, is 15% thinner than Sony's popular Vaio line of subnotebook computers. Weighing in at 5.3 pounds, this is Apple's lightest portable since the 2400 model that was discontinued about three years ago. Light is nice, fast is even nicer: The new PowerBook clocks in with processing speeds of up to 500 MHz. This is the first of Apple's portables to use a G4 chip, now standard with desktop Macs.

And while hardly surprising, Jobs's confirmation of a new line of desktop computers with recordable DVD drives is greatly welcomed. Called iDVDs, the drives will be a standard feature on the latest models. Better yet, Apple will load every new Mac with software called iTunes that lets users copy music off CDs or the Net onto their computers. There are plenty of programs -- MusicMatch Jukebox and SoundJam, for instance -- that do this already. But there's a big advantage to having the digital-music software pre-installed and tailored for your Mac.


  Apple has a lot riding on the upcoming PowerBook. It sorely needs a hit. The once popular iMac and iBook, which powered the company's resurgence over the past three years, have run out of steam. While PowerBooks have traditionally been big sellers, it won't be easy this time. For one thing, retailing in general and computers in particular have headed south. Indeed, the size of Apple's discounts worries me. The company sliced $300 off the price of the unpopular G4 Cube and nearly $1,100 -- yes, more than a thousand bucks -- off that of the G4 server!

Such steep price cuts suggest that Apple is struggling to clear out its inventory. An earlier campaign of rebates clearly failed to do the trick. Discounts, of course, are good news for buyers, and if ever there was a time to buy a Mac, it's now. But what if these cuts lead buyers to begin to expect sharply lower prices? That's exactly what has occurred in the auto industry, which has trained consumers not to buy without some discount or rebate. Such a change in consumer psychology would be disastrous for Apple, which doesn't have the cash flow to support endless discounts.

Fortunately, one price cut does not a trend make. And if it empties Apple's glutted warehouses, that would give the company a clean slate on which to launch a new PowerBook. Since PowerBooks have traditionally been strong sellers, Apple is starting the year with its best foot forward. Still, Apple is looking at a tough road ahead. No one is having an easy time selling anything, whether it's toasters or pajamas, and computer makers are having the toughest time of all. Consumers have given a collective yawn to the industry's latest offerings. But Apple is just the company to revive consumers' interest in computers. That's exactly what they did three years ago with the iMac. So I have my fingers crossed.

Haddad, Atlanta-based correspondent for Business Week, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BW Online

Edited by Beth Belton

Before it's here, it's on the Bloomberg Terminal.