Macworld '98: "Apple Is Coming Back"

"Oh sorry, I forgot...one last thing," said the master of surprise, turning back
from almost walking offstage at the end of his hour-long keynote on January 6. The world's
largest single collection of Mac fans cheered and clapped, even before he said what it
was. Steve Jobs is known for springing the unexpected at the end of his Macworld sessions.
Last year's surprise-a $ 150 million tie-up with rival Microsoft-had dissolved into boos
and hisses. Macworld '98 saw cheering all the way, as Jobs surprised the world and almost
every one of us in the audience with his announcement-not of a sudden permanent CEO find,
but of Apple's $ 45-million profit for the first quarter of fiscal '98.

Apple executives and other shareholders
jumped in glee and one yelled: "The stock's gonna hit 20 bucks!" The stock,
halted immediately following the news, resumed again to gain 20 percent that day to close
at $ 19-with 16 million shares changing hands, 10 times the daily volume.

How did Apple do it? Partly by selling
132,000 G3 Macs during the last 51 days of the quarter, against its own estimates of
80,000. The 'PII-killer' Macs are high-performance systems based on the new G3 chip, and
are aimed at high-performance server, publishing, and multimedia content-creation
applications. More important to Apple's health, they're new systems that carry a higher
pricetag and fatter margins.

A lot more must have gone into adding up to
that bottomline, though. The reclusive Jobs didn't stay around to answer our questions at
the press conference that followed, but Fred Anderson, CFO, Apple, also attributed it to
lower post-restructuring costs and improved gross margins. When Apple finally posted its
results on January 14, its revenues came in at $ 1.6 billion and a net profit of $ 47
million. That's lower than the $ 2.1 billion in the same quarter a year ago, but the
profits are a great deal better than the redlined $ 120 million net loss of that quarter.

Half the sales came in from Apple's
traditional channels. Starring in these was a very visible new distribution deal with
CompUSA, with their store-within-a-store for Apple products, staffed by Apple-trained
salesmen and support staff. Before the deal, Mac sales were 3 percent of CompUSA revenues
in October; after it, it made up 14 percent of revenue in the 57 stores featuring the
Apple concept. All 148 CompUSA stores US-wide will shift to the concept by March.

The other half was the surprise. It came
from the online Apple Store at www.apple.com. The direct-sales web site lets web users
access details on every Apple product, and also add up their own specs for their own
custom-made Macs. Finally, online ordering gets it delivered to their homes. Coupled with
the kind of aggressive pricing that you'd expect more from Dell and Gateway than from
Apple, it added up to a lot of business.

But if the black bottomline was a
well-rehearsed postscript to interim CEO Steve Jobs keynote, his entire presentation
focused strongly on Apple's products, distribution channels, and the application software.
A highlight was Office 98-released, for now, for the Mac alone. A strong statement of
investor Microsoft's backing of the Mac platform, Office 98 is no Windows-to-Mac OS
retrofit; it's a Mac application. As a Microsoft VP demonstrated later, it packs Mac-only
features-from a fonts menu to a drag-n-drop install, apart from launching well ahead of
the Windows version. "We've figured out what Mac users want," he said,
"finally."

Jobs also announced IE4 for the Mac, which
Microsoft was later distributing free on CD ROM at its very prominent stall at the
MacWorld exhibition; Mac OS 8.1; and a very impressive Web-savvy QuickTime 3.0. Among the
many product announcements, software starred:

n Office 98 ships first on the Mac, before
the Windows version, and it packs some Mac-only features in Word, Excel, and other
modules. And powerful new easy-to-use features, such as drawing a table with simple lines
and boxes.

n Internet Explorer 4.0 (IE4) ships for the
Mac; Microsoft gave away CD ROMs free at Macworld.

n Mac OS 8.1 adds a high-performance file
system that takes away all limitations on file sizes, adds DVD ROM drive support and fixes
some bugs. This summer, this could be superseded by Mac OS 9-now called Allegro-and,
possibly, Rhapsody.

n QuickTime 3.0 has many features,
including smooth audio and video streaming over dial-up lines-great for web use. The basic
playback version is free; a new $ 30 professional version packs authoring and some
impressive features. One of them: Just drag-n-drop one QuickTime clip over another, and
the two are neatly and smoothly spliced together for playback. That little demo got a lot
of applause for the developer, who showed it on stage with some home footage.

n And then there's Rhapsody. Or is there?
Did we miss something, or did Jobs forget the word? The media has got "obsessed with
Rhapsody," said an annoyed Avie Tevanian, VP, Apple, later. "It's just not in
the spotlight today. Mac OS will continue to be supported." Quite a surprise,
considering how much it was in the spotlight a year ago with the NeXT acquisition. But
Tevanian did say that the Unix-derived, object-oriented OS would likely back Apple's
server, and high-end-applications thrust, while Mac OS would remain the mass OS.

n Other "no comment" issues?
Apple's NC strategy, the future of the Newton MessagePad, and the eMate. "We're not
into predicting the future any more, we're into delivering now," was the Apple
refrain.

So amidst all this glory, what's Apple
missing? The entire low-end range in hardware, for one. At the press conference, Mitch
Manditch, VP (Sales), acknowledged that 40 percent of PC sales were sub-$ 1,000,
"which does have our attention as a management team", but that it did not occupy
Apple attention or focus beyond that at present. So while US buyers can get a 32 MB, 2 GB
HP or Compaq P200MMX complete with 56 Kbps modem, Apple has nothing whatsoever to compete
with in that space. For now, it will focus on the higher-margin business, and the core
areas that are already Mac-centric: publishing, design, and multimedia content creation.
But, as Jobs said in his keynote, even though G3 Macs were more powerful than same-price
Pentium II PCs, Apple did need to match prices with the PC industry far more closely, to
expand its user base. That will be crucial for Apple, for its profitable niche markets are
not rapidly expanding ones. But for now, it's taken the first steps. "We're starting
to see results," Jobs said. "Apple is coming back."