When you’ve knocked around Silicon Valley for as long as I have, you’re bound to hear your fair share of really bad ideas.
And I just heard a bad idea for the ages.
On Monday, The Wall Street Journal ran a column suggesting that Apple Inc. (Nasdaq: AAPL) flush its line of Mac desktop computers.
That’s an idea that makes some of the biggest “loser” pitches I heard during my days as an advisor to venture-capital funds sound like polished gems of genius.
First off, slashing its Mac division would sap nearly $6.9 billion – that’s 9% – from Apple’s top line. Does taking a 9% pay cut sound like a good idea to you?
But that’s just the “simple” reason for not following the Journal‘s advice.
Today, I want to show you exactly why Apple needs to protect tech investors and their hard-earned money from this horrible advice.
The Creative Department’s Secret Weapon
At first glance, the Journal‘s advice might seem smart.
After all, PC makers have been under pressure for years – starting even before the rise of smartphones and tablets.
In late 2004, International Business Machines Inc. (NYSE: IBM) sold off its PC business because of declining profits.
And just two years ago, we saw the worst decline in PC shipments ever – from a 6.9% drop from 88.7 million units shipped in the fourth quarter of 2012 to 82.6 million units in fourth-quarter 2013.
So, from that survivor standpoint alone, Apple’s Mac has to be considered the single most successful PC ever.
First released in January 1984, the Mac was the first mainstream PC to feature a graphical user interface – those are the icons on your PC’s screen you use to navigate through your computer – and a mouse.
In no time, the Mac turned the creative and publishing industries upside down. Suddenly, advertising agencies, magazines and newspapers – and now websites – could use a single computer for just about everything.
To this day, the Mac remains the standard of excellence in just about every creative field, from animation and publishing to website design and engineering.
So, for The Wall Street Journal to suggest Apple should “kill off the Mac” shows an utter lack of understanding of the critical role this device plays in the lives of millions of professionals.
Not to mention Apple’s financials. Consider that the Silicon Valley legend makes more profit on Macs than the top five PC vendors combined.
And like I said, Apple sold 5.5 million Macs last year, bringing in $6.9 billion, or 9% of overall sales.
I’m not making this up. This next statement is a direct quotation from the article:
“This would be a crazy thing to say for any other company, but Apple doesn’t need this revenue.”
They’re right. That is a crazy thing to say.
Now, let’s drill down and see what the fuss is all about.
As the Journal sees it, Apple should ditch the Mac and instead focus on products that represent “the future” – iPhones, iPads, Apple Watches, and streaming music and TV.
This analysis ignores two key Apple fundamentals:
- First, it was the big sales and high-profit margins from the Mac that gave the company the intellectual freedom and cash flow to come up with these other breakout devices in the first place.
- Second, and much more important, the Mac plays a vital role in the family of Apple products. In other words, the Mac is not just a computer – it’s the flagship device of Apple’s constantly expanding high-tech “ecosystem.”
In fact, Apple is the first and so far only company in the world to offer truly “unified computing” to you – the consumer market.
Unified computing is an ecosystem in which all of a home’s computers, software, mobile devices and other pieces of hardware (television, thermostat, etc.) communicate seamlessly with each other.
For instance, the Mac’s current “Yosemite” operating system works harmoniously with the iPhone and iPad.
And Yosemite has a “handoff” feature. If you start to write a long email on your phone and put it next to to your Mac or MacBook, the PC senses your iPhone and prompts you to complete your email on the larger screen.
At the Apple Worldwide Developers Conference in San Francisco last week, Apple unveiled a number of new features to be included in the fall release of a Mac operating system, El Capitan.
The new OS will open software applications about 1.5 times faster than Yosemite does. El Capitan also will significantly improve Web searches and, more importantly, file searches – long a hornet’s nest of problems for OS developers.
So as you can see, given the crucial role the Mac plays in the whole family of Apple products, it would be sheer lunacy to drop the Mac. And not just because of the $6.9 billion “charge.”
It’s something much more basic.
Avoiding the Angry Mob
A move like that would enrage tens of millions of Apple users, who are almost fanatical in their devotion to the company. (I’m one of them.)
It would also hurt the company’s growth. Just imagine this scenario.
You go out and buy your first iPhone or iPad, fall in love with it – and then decide you’d like to go whole hog on the Apple ecosystem.
You then go to the Apple Store only to be told, “I’m sorry, we no longer sell computers.”
That won’t fly.
And it gets worse.
Dropping the Mac would give many of the 135 million people who purchased iPhones over the last two quarters a reason to drop Apple entirely.
Add it all up, and the Journal has just written nothing short of a game plan for disaster.
In fact, should Apple follow this poor advice and drop the Mac, I would be seriously tempted to tell you to sell any Apple shares you own.
And now I want to let you folks know I’ve been working for months now on putting together an in-depth report on a very intriguing profit opportunity.
I’m going to send all the information you need tomorrow. So keep an eye on your inbox.
For those who cash in, this is going to be an extremely lucrative addition to your tech portfolio.
Have a great weekend.