Apple's Inventory Moves:Hold on there for a cotton-pickin'-minute.
Is It Really Beating Dell?
Bretsky:
Interesting take on Apple's recent comment about their 'one day' inventory,looks like there are problems with this wild claim by Apple according to this article from IBD.
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Date: 4/19/99
Author: Nick Turner
Look who's calling Dell fat.
Once viewed as bloated, Apple Computer Inc. claims it ended the last quarter with a day's worth of inventory. That compares with six days for Dell Computer Corp., the personal computer maker thought to be the epitome of efficiency, Apple officials say.
Apple has outsourced some assembly and testing and has eliminated warehouses throughout the country. Using ''just-in-time'' manufacturing, Apple keeps supplies near its three main factories in Ireland, Singapore and Sacramento, Calif.
''We've taken a lot of steps to improve the operational efficiency of the entire supply chain, and it's real,'' said Fred Anderson, Apple's chief financial officer.
Hold on a minute, though, analysts say. It's unclear what can be made of Apple's inventory claims.
The number is misleading because it doesn't include inventory in the distribution channel, analysts say. Three weeks' worth of iMacs are in the hands of distributors and dealers, although that is down from five weeks last quarter.
<i?Others fret Apple's vigilance will cost the company sales. Apple's popular iMac computer is backlogged in some areas, such as Japan. If product doesn't reach the market fast enough, frustrated customers may switch to another brand.
''It appears as if they've left some money on the table,'' said David Stremba, analyst at Dataquest Inc. in San Jose, Calif. ''The one day of inventory may be more of a problem than something to be happy about.''
But running a tight ship has been key to Apple's comeback. Without an increase in sales, the company went from losing $1 billion in fiscal 1997 to earning $309 million in fiscal 1998.
Apple has boasted of its inventory management since its fiscal fourth quarter ended Sept. 25. At the end of that period, Apple had six days of inventory, besting Dell's eight days. In its first quarter ended Dec. 26, Apple had two days vs. Dell's seven days.
The Cupertino, Calif.-based computer maker posted profit of $135 million for the period ended March 27, up 145% from $55 million in the year-ago period. Earnings per diluted share rose 121% to 84 cents, from 38 cents. Sales increased 9% to $1.53 billion, from $1.41 billion.
Along with some analysts, Dell takes issue with Apple's inventory claims. Dell's inventory measurement demonstrates how quickly PCs actually reach customers, says Libba Letton, a company spokeswoman. Apple's number doesn't show that, she says.
''We feel like our number is stellar, and we can do it because of our direct model,'' she said.
Even if Apple doesn't match Dell's efficiency, trimming its own stock to one day was no small feat, analysts say. There have been reports of problems with Apple's outsourcing partners. A plant that was building iMacs in Mexicali, Mexico, caught fire last month. Analysts don't foresee any lasting problems, however.
The company also has some unique inventory challenges. In January, Apple began selling iMacs in a choice of five colors: blueberry, strawberry, tangerine, grape and lime. No other major PC maker offers such options.
When it began the color experiment in January, Apple shipped iMacs in five-packs. That meant dealers had to sell all the various colors in equal amounts, regardless of how popular each one was.
It turns out that buyers were most enamored with blueberry. So Apple made an adjustment. Now it sells iMacs in eight- packs. Dealers get four blueberries and one of each of the other four flavors.
Analysts say distributors won't be able to respond to fast- emerging trends if they have to buy computers this way. Apple, though, has no immediate plans to change its technique.
Why? The iMac is an otherwise simple machine. ''Wintel'' PCs - those that use Microsoft Corp.'s Windows software and Intel Corp. chips -come with all sorts of different speeds and hard-drive sizes.
Aside from the color choice, the iMac has set features: a 333-megahertz processor and six-gigabyte hard drive. There is an older 266-megahertz iMac still in the distribution channel, but Apple no longer manufactures it.
Before its turnaround, Apple offered more than 15 product families. The company has cut that down to four, three of which are on the market now: a consumer desktop iMac; a higher-end desktop machine for publishers, artists and other users called the G3; and its high-end PowerBook laptop.
Its fourth product will be a consumer notebook that Apple should release later this spring. Analysts expect it to be styled in the same way as the iMac, which has a curvy, translucent shell.
The new notebook is highly anticipated - a fact that could bring Apple's current notebook sales to a grinding halt, analysts say. The company reported some weakness in that area in its second quarter.
The unique look of its computers and its loyal following have allowed Apple to manage inventory in ways that other PC makers couldn't, analysts say.
''If somebody goes out with the idea that they want an Apple, if one store doesn't have it, they'll go to the store that does,'' said Rob Enderle, an analyst at Giga Information Group in Santa Clara, Calif. ''If neither store has it, they'll probably wait until they do and go on a list.''
But there's a danger that Apple's edge could disappear. Low-cost PC makers such as Emachines Inc. plan to imitate the iMac's design. Emachines' PC prices range from $399 to $599, far lower than the $1,199 iMac.
Anderson says sub- $600 PCs haven't hurt iMac sales. But even if that's true, Apple's perch likely won't stay safe, analysts say.
''If you have a choice between an Apple and a machine that has that innovative flavor but isn't an Apple at half the price, you're likely to buy the machine at half the price,'' Enderle said.
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