In 1994, Apple revamped its Macintosh line with the introduction of the Power Macintosh, which was based on the PowerPC line of processors developed by IBM, Motorola and Apple. Apple's operating system software was adjusted so that most software written for the older processors could run in emulation on the PowerPC series.

After an internal power struggle with new CEO John Sculley in the 1980s, Jobs resigned from Apple and went on to found NeXT Inc., which Apple ultimately bought. This move brought Jobs back to Apple's management. On July 9, 1997, Gil Amelio stepped down as CEO of Apple after overseeing a 12-year record low stock price and crippling financial losses. Jobs stepped in as the interim CEO and began the critical restructuring of the company's product line.

One of Job's first acts as new acting CEO was to begin development of the iMac, which served two purposes. It bought Apple time to restructure and it was an all out financial success. The iMac has sold roughly one million units each year since its original introduction.

In 2001, Apple introduced Mac OS X, an operating system based on NeXT's NeXTstep, that married the stability, reliability and security of Unix with the ease of use of the Macintosh interface. It was targeted at professionals and consumers alike. Mac OS X enabled consumers to migrate to the new technologies while maintaining access to older applications written for the older Macintosh OS revisions.

In early 2002, Apple unveiled a new iMac G4, and the XServe 1U rack mounted server. Originally featuring two G4 chips, the XServe was unusual for Apple in two ways. It represented an earnest effort to enter the enterprise computer market and it was also relatively cheaper than similar machines released by its competitors. In mid-2003, Apple launched the PowerMac G5, based on the G5 processor. This was the first 64-bit computer sold to the general public.

In addition to computers, Apple has also produced consumer devices. In the 1990s, Apple released the Newton, an early PDA. Though it failed commercially, it defined and launched the category and was a forerunner and inspiration of devices such as Palm Pilot and its descendants - PocketPCs.

Financial Health/Revenue Growth

On April 13, 2005, Apple announced second quarter results and they were quite strong. "The Company posted a net profit of $290 million, or $.34 per diluted share. These results compare to a net profit of $46 million, or $.06 per diluted share, in the year-ago quarter. Revenue for the quarter was $3.24 billion, up 70% from the year-ago quarter. Gross margin was 29.8%, up from 27.8% in the year-ago quarter. International sales accounted for 40% of the quarter's revenue." An examination of these results indicates that the music business appears to be the strongest part of Apple, and could be the key to maximizing shareholder value. The Power Mac product, which includes the Xserve product line, was the weakest over the past year and could indicate that this area should receive less emphasis in order to increase shareholder value.

Apple's management has been working to reduce the company's expenses, eliminate inefficient product lines and restore a reasonable margin or return on each piece of computer hardware that is sold by Apple. This necessitates a reduction in market share and sales revenue in the short-term, in order to reap the benefits of greater efficiencies, better products and larger margins in the long-term. It does not mean that management is writing-off any markets or are disinterested in revenue growth, it means rather that they are more interested in solid financial fundamentals than they are interested in short-term sales and immediate profits. In the last fiscal quarter Apple was able to once again establish gross profit margins above 25%. This is a tangible sign that the company is poised for efficient growth and better financial health.

Cash Flow

This stock's price/cash flow ratio is normal compared with those of both the broader market and other stocks in its industry. Price/cash flow is similar to price/earnings, except that cash flow, which is the money available to be distributed to investors, is substituted for earnings. When purchasing a stock, a low price/cash flow is generally preferable to a high one, though one also needs to take into account the company's growth prospects.

Cash Flow (Values in millions of $ except per share values.)

Cash Flow table with Five Columns of Quarterly Data

Cash Flow

30 Sep 2000

Reclassified

29 Sep 2001

Net Income/Starting Line

Depreciation/Depletion

Deferred Taxes

Non-Cash Items

Changes in Working Capital

Cash from Operating Activities

Capital Expenditures

Other Investing Cash Flow Items, Total

Cash from Investing...

This stock has also seen steady revenue growth over the past three years, with its results over the past year being particularly impressive. Like its peers, this stock's earnings per share have grown at a very high rate over the past three years. Note that this stock's sustainable growth rate is quite a bit less than the rate at which its earnings per share have grown. That means that the company will probably have to raise additional capital from outside sources at some point if it continues to grow at its current rate. Apple currently has no long-term debt.
As Apple recently touted the sale of the 500 millionth song by its iTunes music store, reports emerged that the company could be close to adding video features to iTunes and its iPod music players. The growth of iTunes over its two-year history underscores Apple's dominance in the online music market. When Apple reported its third-quarter results July 13, the company cited data from Nielsen Soundscan that gave the company 80% of the market for legally downloaded songs. Apple also said the latest reports from NPD Techworld gave its iPod 75% of the market for MP3 players, and the company posted iPod sales of $1.1 billion for its third quarter. With the iPod offering music and photo capabilities, speculation has grown that Apple could be on the verge on releasing a video-playing version of the iPod. The Wall Street Journal reported that Apple has held discussions with the major recording companies about selling music videos through the iTunes music store. Such a move would necessitate the release of a new iPod that plays videos. Analysts have said that Apple's iPod probably has about six months of growth ahead of it before the MP3 market begins to show signs of maturity and reaches a plateau. The company, according to those analysts, will need a new hit product by early next year.

Comparison - Dell v. Apple

Dell, Inc. is a computer-hardware manufacturer based in Round Rock, Texas. The marketplace perhaps associates Dell Computer most with the personal computers it designs, manufactures and sells for home and office use, but Dell also operates in the enterprise computing market with servers, data storage devices, network switches and computer cluster lines. Personal digital assistants, software and peripherals (including printers) round out Dell's product offerings.

As of 2005, Dell, Inc. had become one of the world's most visible companies. In February of 2005, Dell appeared in first place in a ranking of the "Most Admired Companies" published by Fortune Magazine. Dell incorporated as a Texas corporation in 1984 with a capitalization of $1,000, the minimum allowed by Texas law. Dell stock trades on the Nasdaq stock exchange in New York under the symbol DELL. As of 31 December 2004 the company had a market capitalization of $104.69 billion.

In its fiscal year ended 28 January 2005 Dell made a net profit of $3.32 billion on revenue of $49.2 billion. These figures represent 26% and 19% growth respectively over the previous fiscal year.

Dell Financial Ratios

Ratio

Short-Term Liquidity

Current Ratio

Acid Test

Days Sales in Receivables

Operating Performance Ratios

Operating Profits to Sales

Net Income to Sales

Dell sells all its products, both to the consumer and to corporate customers, using a direct sales model. Unlike Apple, Dell neither operates retail stores nor sells products through other retailers or resellers. Dell Inc. does, however, showcase its consumer-oriented products at kiosks in major malls. The sales staff at the kiosk may assist customers in ordering a product for shipment to their home. The Dell direct business model, which eliminates the middleman, has a reputation for its speed of sale-to-delivery of the company's products. Dell builds computers to order and this keeps its inventory costs low. Customers pay for product items before Dell builds those items, and this gives Dell a negative cash conversion cycle.

Dell currently ships Windows XP as the operating system (OS) of choice for most of its new computers, but it also offers Red Hat and SUSE for servers. Certain computers get sold "bare-bones" with a FreeDOS disk included in the box. On Dell's Windows machines, the manufacturer bundles a large amount of software. Some have accused Dell of shipping spyware and claim that its technical support team have instructions not to support its de-installation.…