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December 18, 2008

Apple Exits MacWorld

I believe the reporting of Apple's withdrawal form MacWorld after 2009 and Jobs lack of appearance this year was misreported. There is little doubt that it had a major negative impact on Apple shares, however. Here is my take on the situation.

The stock reacted very negatively to the MacWorld announcement, immediately falling about $4 in after hours trading on Tuesday and giving up another $3 during the day on Wednesday. Most commentary suggested the drop was due to either Jobs health or the lack of a new product introduction in January as if there were a big one coming surely Jobs would want to make it.

There is little doubt that these issues contributed greatly to the drop but I think a big part of the fall was a delayed reaction to the NPD data, Goldman Sachs downgrade, and other cautious analyst commentary. The stock held up well against those news items so the MacWorld announcement set up an easy sell/short opportunity. An imbalance occurred to the downside as there is enough legitimacy to the demand concerns to scare off bulls and the stock is already owned very widely. There probably aren’t a lot of new buyers out there, especially while concerns around current and 2009 demand for Macs and iPhones linger.

Getting back to MacWorld, I think it is highly unlikely that Jobs health would be the cause for the cancellation. Apple leaked to the New York Times about his health a few months ago – it was OK. Even a company as secretive as Apple is going to be hard pressed to not come clean in the current environment (Re: Madoff) and tell the truth if Jobs is actually too sick to appear. And if he is too sick to appear a month before the event, he is obviously really hurting and it would be hard to cover it up completely. A sickness related cancellation seems much more likely to be a last minute thing.

The new product issue seems more likely to lead Jobs to skip MacWorld....

....Jobs and the company seem satisfied with the current product lineup in their limited public comments. Apple clearly sees the iPhone having massive volume in front of it, possibly including new iterations. There is a developing netbook product category between Apple's laptops and iPhones but I believe Jobs when he thinks the iPhone is a netbook. Certainly that is the case if rumors of a $599 bulked up iPhone have any validity.

There is also the possibility that a material new product will be introduced but Apple wants to send a message by letting one of the potential Jobs replacements, Phil Schiller, make the announcement. The quick and dirty reporting on the MacWorld news conveniently left out that Schiller, COO Tim Cook, and other senior executives presented at Apple's most recent product announcement events. Maybe Apple is trying hard, in its own overly secretive way, to tell us that a leadership/succession plan is actually in place.

But by far the most likely explanation for the end of Apple at MacWorld and Jobs not appearing this year is that Apple really is pulling back from trade shows. Apple has announced many of its more recent product introductions at company-sponsored events and probably just wants to save the money, time, and effort while also controlling the timing of its product introductions.

Maybe plain, old politics is playing role. I'll bet that most people thought that MacWorld was an Apple event. It is actually run by a third party, IDG, which has done other Apple-based trade shows for years. Apple has already stopped attending those shows. Reading some articles about the MacWorld cancellation gave me the impression that there was some tension between IDG and Apple. Maybe Apple just wants to stick it to IDG by not sending Jobs to their final appearance at MacWorld

Supporting my view that Apple is simply ending its participation in third party sponsored trade shows is Alex Hesseldahl, a technology writer for News week who wrote on the Byte of the Apple blog:

"But Macworld costs Apple money. I’m told reliably that participating in Macworld costs Apple somewhere north of $2 million, and somewhere south of $5 million. Why spend that much when you can have the same kind of impact for a lot less without the need for a third party?
I suspect that when Apple throws a large-scale press conference at Moscone, it costs a lot less than $2 million, and even less for the announcements it does occasionally at De Anza Community College. Same impact, less money. What about this decision doesn’t make good business sense?
Macworld isn’t the only trade show from which Apple has backed away in recent years. Earlier this year Apple canceled its booth for the NAB show, in 2002 it walked away from Macworld Tokyo, nor did it participate in the Apple Expo in Paris this year."

As noted at the outset, legitimate concerns exist about demand for Apple products in this brutal economic environment. Those concerns set up a big sell reaction to the MacWorld news. But on its own there are plenty of legitimate reasons not to overanalyze the MacWorld news and assume the worst.

And if you do want to overanalyze it (just as I am doing!), then maybe the question we should be asking is whether Apple is undercutting support from software and hardware vendors partial to the Mac OS platform by pulling out of trade shows. With the Mac and iPhone going more and more mainstream it is these very supporters that Apple needs as it s forced to steal market share from tougher competitors like Nokia, Hewlett Packard, and Research In Motion. Now there is a story I'd like see discussed.

Posted by Steve Birenberg at December 18, 2008 03:08 PM in AAPL