Apple in Danger of Fall From High Branch


Is Apple Computer rotten to the core?

The maker of colorful desktops that became design icons is performing poorly in the midst of a technology recession. But perhaps the most worrisome sign is where Apple hopes to get its groove back: In the music sector.

The Cupertino, Calif.-based company is betting the farm on its digital-music player, the iPod. The field for MP3 players is a crowded one, but the segment suffers overall from sluggish sales. And the company recently announced the launch of an Internet music download service to supplement its iTunes music store.

"There's a worm in this Apple," says Tucker Jensen, an analyst with Post-Tech consulting, based in San Jose. "And that worm is Steve Jobs's obsession with music."

Never much more than a niche player offering pretty but overpriced wares, Apple may be facing its worst crisis since the mid-1990s, but this time, according to Jensen and other analysts, with little hope of pulling out of it.

Apple has had no shortage of missteps over the years, like its unsuccessful line of QuickTake cameras, the Pippin game system (dubbed the most obscure video game system of the 1990s), or the failed proto-Palm Pilot, the Newton, an object of popular derision, including during an episode of "The Simpsons."

"Steve, what are you doing to your baby?" asked Merrill Lynch analyst Anthony Webb, who has followed Apple since the late 1980s. "He sells a few iPods, but the cost could never be justified. He'd have to ship 5 million a quarter to make up for what he's sunk into that thing." In its most recent quarter, Apple sold 216,000 of the hand-held music players.

Apple Computer reported a loss in its first fiscal quarter, ended in December, on weaker than expected revenue. Sales of Macintosh computers were flat at 743,000. The company took a $17 million charge for shutting down operations, including a manufacturing plant in Singapore. Now analysts expect profits to decline by as much as 75 percent when second quarter results are announced.

Shares in the company rose 6 cents to close at $14.69. "Sell," Webb said. "They'll be lucky if they're over fifteen in five years."

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