The Rush To Think Different Is On May 10th, 1999 Onward to new highs? Yeee Haaaw! Boy that ride was fun! Apple is now an official hot trading property. It's fun to ride the ups and downs with plenty of liquidity to guarantee fast trades and narrow point spreads between ask and bid. One trader I know had been accumulating for weeks in the $35 range and sold last Tuesday at about $48 for a nice short-term profit. Now he's back in as of last Friday morning. He didn't want to be standing on the sidelines as we go into Steve Job's WWDC keynote address on Monday. For the less frivolous investors going for the long term gold, don't let the slump in the stock price fool you. It's a natural phenomenon to be expected anytime an equity does a 30 percent run up in less than a fortnight. In fact, those wacky technicians are calling $44 the new level of support. What we are all hoping for now is to break through the $50 1/8 AAPL stock price set June 21, 1995. Price penetration above that point (set on the summer solstice) would technically be the end of the long-term slide that Apple began on that day. The sky could be the limit. At least till the low $60s where resistance left over from the early 1990's might still be enforced. Speculative Froth I'm not so optimistic. AAPL may be preparing to move on to new highs but the gale warning flag is up for the high tech sector. The market shows every sign of being oversold and so ripe for a 10 to 20 percent correction you could call it fetid. The technical indicators are all peaked out. At these heights with interest rates near 5.8% it would only take a minor flash in the sky to cause a major sell off. "The exuberance in the market is something I'm very uncomfortable with." Says old school master, Vince Farrell. "I've never seen anything like it. Maybe people should have a young person run their portfolio because they have no fear…The danger signs are starting to flash pretty bright to me." As a trader, froth is my bread and butter. Still, got to feel a few butterflies when the most experienced minds in the market head for calmer waters. Earlier in the month, a pie in the sky Internet IPO offering, Comps.com (CDOT), actually closed lower on its first day of trading! Hmmm, it could be getting a bit late in the game. Of course, you're probably thinking our hero, Mr. Greenspan, won't let the market turn sour or raise interest rates. That's what I thought till I read this rather dark contarian point of view. http://www.fame.org/fedwatch/fw-003-frame.htm New Economy Then there are those who say that we are in a new era, a New Economy. Things are different now, they say. The economy has been globalized and market reforms have increased transparency, enabling investors to make more informed decisions. More efficient investments lead to faster growth. The New Economists believe because of the Internet/digital revolution the economy can grow much faster than it could before without spawning the cycle of boom, then inflation, leading to bust, characteristic of the industrial age. The productivity gains in the near future are likely to be phenomenal justifying the record high asset prices of today. There is obviously some truth to this argument or our economy wouldn't have gotten this far. But we have not totally left behind the morass of restricted trade and nationalistic imperatives that dominated the 20th century. The new economy will not be complete until the current concept of sovereignty is modified to allow, among many other things, free migration for workers, thus relieving wage pressures. Democracy, balanced national budgets, open economies with deregulated industry are by no means universal, yet are all prerequisites for the New Economy. What about a global currency? We are nowhere near agreement on one. Without one, capital flows around the world will continue to be chaotic and destabilizing for emerging markets. We haven't seen the last of the Asian crisis yet. The New Economy is not complete and the same old dangers of the industrial era could swamp our boat without visionary leadership to forge the new road ahead. "It is no accident that Europe, with its restrictive labor markets, and Japan, with its lack of flexibility, have lagged in the New Economy." So says Domingo Cavallo, the guy credited with saving Argentina from hyperinflation. http://www.forbes.com:80/forbes/98/0601/6111162a.htm New Paradigms or Desperate Bids? The Internet revolution is really beginning to kick in. Businesses are hyperventilating in an environment fraught with complete unknowns and outrageous new rules. There are massive opportunities to be had. Yet many, perhaps most corporate officers over 40 (that's most of them), aren't comfortable with e-mail let alone the WWW. I know a former CEO of a multi-million dollar firm who didn't even have e-mail at home till this year and a department head at the University of Texas who has his secretary print his e-mail for him every morning. These are people living in dread of the changes that technology brings. Then there are the big digital hardware companies run by people much more technologically savvy but not much more secure in their vision of the future. Warren Buffett won't even look at the high tech stocks because the level of uncertainty and novelty is so high and predictability is at an all time low. This environment is cool for traders but sucks for long term investors. The betas are rising. Corporations like Sun, HP, 3Com, Oracle, and Compaq, just to name a few, are in the process of reorganizing their business models into something that would have been quite unrecognizable a few years ago. Apple got the jump on all these slow learners 18 months ago through the visionary leadership of Steve Jobs. HP, for example, has seen the handwriting on the wall for enterprise hardware suppliers and it reads: commodity. So, the No. 2 computer manufacturer has a plan to give away computer equipment to new customers and help them get their online business up and running for a piece of the revenues or better; a stake in their equity. HP is looking for $7.5 billion in revenues per year from these types of venture capital-like sales within a four year window. Things get pretty murky four years out in this business. Sun Microsystems, not to be out maneuvered by HP, has it's own scheme that "eliminates the need for businesses to run their own computers." According to the Wall Street Journal, "Sun…foresees a world in which they sell most of their computer hardware to ‘outsourcing' companies that run server farms, instead of directly to large corporations." Sounds appropriately retro for the company that tried to sell the business world on network computers a few years ago. Now they envision a new age of mainframes, the only difference is this time you'll connect via T1 lines instead of a phone coupler. 3Com watched their old line, stalwart, networking business get gobbled up by Lucent, Cisco and Nortel. Now 3Com is trying to leapfrog the network giants by going wireless with their PalmPilot VII. "3Com is planning to expand into multiple areas of wireless networking, hoping that the new thrust will turn into a high-growth business that offsets torpid sales of its modems and network adapters." Could be a case of not enough too late. BTW, those hoping that Apple might want to buy 3Com for the PalmPilot are way out of the money. http://www.excite.com/computers_and_internet/tech_news/zdnet/?article=/news/19990507/2255041.inp Don't forget Oracle, the world's second largest software company. Its stock value is languishing and management is running scared over unresolved Y2K issues. The solution: Emulate Apple. Only in the high-end database server market. Oracle plans to introduce the world's first database appliance. This iMac-like conception is the size of a dorm room fridge, bright red and eliminates the need for the company database administrator. That's sure to be a big hit with the IS personnel. Just plug and play. Yeah, right. If that's not inflective enough for ya, how about National Semiconductor's announcement that it's getting out of the PC CPU business for good. Intel won. Surprise! Or the Microsoft AT&T deal. Wonder what the Fed makes of Microsoft diversifying? Even more interesting is AT&T's conquest of MediaOne Group which gives the big T access to 60% of the nation's household cable connections. You thought Microsoft was a malevolent master of the PC age? Wait till you live awhile under the totalitarian rule of AT&T in the Internet age to see what the word "monopolist" really means. These guys have half a century of experience at this game. This is one deal the FCC needs to nip in the bud. Call your congressman now. AOL has a 'what, me worry?' attitude about the broadband cable threat. AOL's president Bob Pittman thinks that their customer base is so ignorant that they don't even care or know what bandwidth is. Corporations that sneer at the intelligence of their customers do so at their own risk. Of course, now AOL is sudden interested in DSL technology but that can't be rolled out rapidly. AOL is ripe for increased short interest. Speaking of sneers, even lowly CompUSA is embracing evolution, after five straight quarters of lost market share, by spinning off a stand alone online retail unit and getting serious about e-commerce. CompUSA has also reorganized their local store near my house in Austin, Texas to the point that one could call it a Mac-friendly environment. Perhaps they decided to clean up their act since the iMac continues to be the best selling computer at CompUSA. If this is a national trend then it's safe once more for Mac customers to resume spending at CompUSA without fear of humiliation. Finally, Be Inc., that little OS company founded by Jean-Louis Gassee, ( a hero of mine) is going public with an IPO worth maybe $60 million. Mr. Gassee was Apple's Director of Research till 1990. The Be OS is what the Mac OS shoulda, coulda been and may still be (no pun intended) when OS X hits the streets.The underwriters are Volpe Brown Whelan & Co and Needham & Co. The offering is expected this summer sometime. Good luck, Jean-Louis, you're gonna need it. Back to Apple What's all the above got to do with Apple? Embrace Change and Be Happy. Meanwhile, I'm just killing time here waiting for the real Apple news that WWDC will generate for us fearlessly foolish pundits to masticate on. Since this week is likely to be an orgy of Mac optimism, seems fair to point out a few nagging worries I have. Market share is what worries me. Worldwide market share is still down from 1998 inspite of the millions of new iMacs out there. Market share is going to be increasingly difficult to maintain in the future because the number of PCs in the world is growing so rapidly that Apple can't possibly expand their production capabilities fast enough to maintain the proportions. Or can they? Apple will soon have to ramp up production to over a million units per quarter just to hold the market share it already has, much less expand. Fortunately, Apple execs are frantically working on outsourcing deals for the whole product line and they have a big pile of cash to expand whatever in-house production they choose. Is market share really important when Apple's growth and margins are top notch anyway? Maybe not from a purely business angle or for the stock price. But the long-term goal of remaining relevant or even becoming a major player in the PC market could be severely curtailed by any further erosion of market share. Certainly, the hoopla of Apple's comeback will die off if market share can't be grown. Not to mention the problem Mac-oriented developers will have selling their project ideas to their corporate bean counters that will be watching the market share numbers, not Apple's profit margin. The other potential fly in the ointment is the transition that the Mac OS is gearing up for. The big leap to the 64-bit architecture of the G4 with OSX. QuickTime and OS 8.6 are mere sideshows to these real issues that will define Apple's future. The G4 and OSX represent the biggest change in the Mac platform since the transition from 680x0 architecture to the PowerPC chipset. That transition was seamless, swift and saved the company from extinction. This time, however, the level of complexity is now vastly deeper than in 1994. How gracefully Apple pulls this off won't so much affect the Mac-savvy as it will determine Apple's ability to convert Wintel users and induct newbies. Our future is in your hands, Mr. Jobs. May the Force be with you. Your comments are welcomed.