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Apple's Problems - Bad to the Core?

by: Shelly Palmer August 25, 2008 | about stocks: AAPL    

Shelly Palmer

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The first quarter of 2008 was the most successful in Apple’s history. The company boasted revenue of $9.6 billion and a net profit of $1.58 billion, compared to revenue of $7.1 billion and a net profit of $1 billion in the third quarter of 2007. But its second quarter results were down ($7.51 billion in posted revenue and $1.05 billion in net profit) from the first quarter. Some people think this downtick signals the beginning of an unfortunate trend-line … or worse. I hope not. But there is certainly more going on here than meets the eye.

In the eighteen months since Apple dropped Computers from its name, the company has greatly expanded its reach. However, with massive growth have come security flaws, software bugs, faulty hardware and a plethora of other puzzling problems.

While Steve Jobs’ operation is known for its quality products and devoted fan boys, it seems that the company has compromised quality for growth. So much so that even Apple’s most devoted supplicants (like me) are beginning to lose faith.

While Apple has had small production problems for years, lately the company has experienced an eerily high amount of bad press for malfunctioning electronics. The major problems began with the release of its new Leopard Operating System.

While the system works great on new Macs (where it is pre-installed by the factory) users running older machines, who tried to make the update, experienced what can only be described as “the blue screen of death,” a complaint that gets its name from fatal crashes in Microsoft Windows. Days after the release of Leopard, message boards erupted with complaints from angry users, many of whom still pray at the Jobsian alter. But many of whom have long memories.

While the Leopard Chronicles were widely covered, the problems in Cupertino did not stop there. In fact, they actually got worse, culminating with the release of the 3G iPhone.

Apple has been promoting the new iPhones as “twice as fast, half the price.” But are they? Not so much. While the hype for the 3G iPhone was ungodly, the phone also received a fair amount of bad press from pundits who noted a significant increase in the cost of data and lackluster battery life. Regardless, the 3G iPhone sold over a million units in its first weekend on the market.

That same Friday, July 11, Apple decided to open its Application store, launch MobileMe (an updated version of its .mac platform, which includes access to a broadband cloud), and release a software update for the original iPhone.

iPhone 1.0 users were vocal about the problems associated with the software update, which caused many iPhones to become plastic bricks. A quick Google search for “iPhone Brick” will yield 2,080,000 results from very sad iPhoners. No matter how you spin it, Apple was unprepared for the launch.

Nothing has been more indicative of Apple’s growing pains than its ultra flawed MobileMe service. The service, which was a large update to its existing .mac platform, has been universally panned. One of the talked-about problems with MobileMe was that a small percent of users lost email service for a few days. The problem was so serious that a colleague of mine got an email from his girlfriend last weekend while sitting on the beach next to her. Puzzled, he asked her if she had just sent him a message from her iPhone. She said, “No.” He showed her the email. She barely recognized the message because she had sent it a week earlier. This was last weekend, a month after the initial problems were reported, and reportedly fixed. The service has been so bad that Apple even publicly stated that its performance has been sub par, and has given subscribers three extra months of service for free. But what good is three free months if the service doesn’t work properly?

Apple’s problems don’t stop there. The company announced that they would replace iPod Nanos (which caught fire) and MagSafe power chords, which broke or melted. Speaking of fire, the company also had a major problem roughly ten days ago when a fire erupted at its Research and Development building on the grounds of its headquarters on the infamous 1 Infinite Loop campus. Small disasters, to be sure, but when you add them up, you begin to see a pattern.

With rumors of Jobs’ declining health, security bugs, the options backdating scandal, engineers canceling appearances at hacker conferences and the continuing saga of 3G iPhones’ awful performance on AT&T’s 3G network (including this week’s pending class action lawsuit citing poor iPhone performance), Apple cult members are in a tizzy. Will the Street be next?

Can the House of Jobs get back on track? Despite major problems in the last 18 months, Apple still tops the ACSI’s customer satisfaction survey — ten points higher than closest competitor, Dell. And sales are robust. Apple shipped 2,319,000 Macintosh computers which represented a 44 percent growth in units sold and a 47 percent increase in revenue for the quarter year-over-year. iPod sales were up five percent in units (22,121,000) representing a 17 percent revenue increase year-over-year and, the faithful purchased 2,315,000 iPhones during the same quarter. Nice numbers.

So, to paraphrase the immortal words of Donnie Osmond, “One bad apple don’t spoil the whole bunch, girl. Oh, I don’t care what they say, I don’t care what you heard.”

Disclosure: No positions

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This article has 56 comments:

  •  
    Aug 25 09:23 AM
    I'm afraid the customers don't quite agree:

    www.reghardware.co.uk/.../
    Reply
  •  
    Aug 25 09:38 AM
    From the above referenced ACSI customer satisfaction survey: "...the survey was conducted before the arrival of the iPhone 3G and Apple's MobileMe debacle. How well, we wonder, will it hold up next time round?"
    Reply
  •  
    Aug 25 09:40 AM
    --->>"Can the House of Jobs get back on track? Despite major problems in the last 18 months, Apple still tops the ACSI’s customer satisfaction survey — ten points higher than closest competitor, Dell. And sales are robust."<<-...

    Therein lies the truth.

    Trolling for hits here?

    Whenever you have new products...OR ... old products. Some will have problems, some won't last, some will need replaced.

    Contrast the LOVE that consumers have with APPL, to the FUD you are spewing in this article. Do you REALLY think that people would be this passionate about Fords, or Dells? No. People know that they are cheap crap, and they live with the problems, KNOWING that they bought cheap crap.

    With Apple, they expect PERFECTION, and when that doesn't happen, they bitch and BITCH and MOAN.

    Eventually the problems are fixed, replaced, or repaird.

    And they BUY THE NEXT Apple product, some even standing in lines to do so.

    Then they have the FUN of bitching AGAIN that the newest product or service isn't PERFECT.

    See, they expect PERFECT, with the DELLS and HP's, they expect crap.

    If you cannot reconcile your whinefest with this, you have written an article without honest merits.

    >>>>Apple still tops the ACSI’s customer satisfaction survey — ten points higher than closest competitor, Dell. And sales are robust.<<<<...

    That is really the be all, and end all, isn't it?
    Reply
  •  
    Aug 25 09:45 AM
    With an opening like this:

    "The company boasted revenue of $9.6 billion and a net profit of $1.58 billion, compared to revenue of $7.1 billion and a net profit of $1 billion in the third quarter of 2007. But its second quarter results were down ($7.51 billion in posted revenue and $1.05 billion in net profit) from the first quarter. Some people think this downtick signals the beginning of an unfortunate trend-line … or worse."

    It seems difficult to take this article seriously. Isn't the first quarter the holiday selling season? And the second quarter is Jan 1 - Mar 31? Does the author just totally dismiss this?

    No doubt with greater volumes comes more glitches, but overall, in terms of quality can one realistically say that Apple products exhibit significant issues and they are rotten to the core? That's a huge stretch. Puffy piece here.
    Reply
  •  
    Aug 25 09:46 AM
    microcephaly is not shameful but surely is a burden.
    cheers!
    Reply
  •  
    Aug 25 10:02 AM
    As an Iphone user I have been surpised by the recent software problems in releases 2.0 and 2.01 and 2.02. Its starting to remind me of MSFT software issues - it appears the software has become too complex for rapid and reliable support. I had thought AAPL was immune. It will be interesting to see if this hurts their image and eventually their premium stock price.
    Reply
  •  
    Aug 25 10:09 AM
    Thanks for saving me the trouble crazy legs. When the author didn't acknowledge the first quarter is the holiday quarter I stopped reading. Common type of Seeking Alpha stuff.
    Reply
  •  
    Aug 25 10:14 AM
    You must get paid by the word as so many of them(words) have No meaning - What makes you an expert? Taking headlines and drawing conclusions? Why not write, based upon real facts. Stating that their business is showing a sales decline due to you conclusions show that you dont really know what you writing about - Why no mention of iPhone deferred revenues? Your publisher should ask for it's money back as you waisted too many words
    Reply
  •  
    Aug 25 10:17 AM
    first news this morning of reception problems testing under strict lab conditions showed no flaw in the hardware www.gp.se/gp/jsp/Cross...

    second i have an 850 dual g4 running leopard with out a crash EVER as well as a first generation mini there are a lot of idiot users who screw with the main libraries and have crash problems or have stupid things like pram batteries from the year one going bad and their clocks and dates are always different messing with directories. people do not know these need to be replaced every 5 years or so

    dragging out the health issues at this point is just ignorant the only thing you left out of this laundry list was Gil Amelio allowed too many motherboard designs to be produced at once.

    i wish you were bright enough to pull off a hatchet job like this

    heres an idea (since you apparently have none of your own) for your next article

    "Apple sells too many computers and phones in the back to school season, record profits will be difficult to top by christmas is this the beginning of the end for jobs?" or " piles of money at Apple causing dangerous stress on floors of company vaults"
    Reply
  •  
    Aug 25 10:17 AM
    DO NOT LISTEN TO THIS GUY!

    Just unbelievable what people get paid for. You call yourself an analyst!

    More like ANAL ist! Like in you have your head so far shoved up your back side your blind to what is really going down in the tech world.

    iJah420 says your FIRED!!!!
    Reply
  •  
    Aug 25 10:19 AM
    It is unfortunate that some people still emphasize the negative events surrounding a company (product flaws) rather than the positive (what the company does in response). Unlike others, I don't expect every product I purchase to be flawless, but when a flaw is found, I do expect the company to stand behind their product and do the right thing. Apple, IMHO, has been incredibly proactive in responding to issues with its products - that's why I keep buying Apple products and stock. I think there is much more reader interest in articles focused on complaining about product flaws than applauding the company's proactive response - guess that's why there are so many articles like this one out there.
    Reply
  •  
    Aug 25 10:23 AM
    Part of Apples problem is what you mentioned - Rumors - With rumors of Jobs’ declining health, security bugs, ...(including this week’s pending class action lawsuit citing poor iPhone performance). Rumors are just that and have no basis in estimating a stocks worth. Notice how most rumors are negative and are usually found to be false, the shorts are at work here. The class action suit article title indicated that a class action suit had been filed, which in fact was false and it was just one person that filed a complaint, again the desperate shorts are at work. Later in the week there were reports that the new Blackberry Bold was having similar connection problems as the iPhone., so it appears the problem may not solely be with the iPhone.

    Apple still tops the ACSI’s customer satisfaction survey — ten points higher than closest competitor, and yet your article starts out saying Apple is bad to the core and here you contradict your own article with documentation that Apple has great customer satisfaction rates, would the satisfaction rate be high if Apple had serious problems.

    As a prior person stated Apples problems wil eventually be solved.

    Another thought. Apples march quarter reported $1.16 however if you include the deferred income Apple's earnings would have been $1.45, approximately 25% higher. Those who complain about Apples high PE should consider the deferred income when calculating the PE for Apple which would yeild a much lower PE.


    Reply
  •  
    Aug 25 10:25 AM
    This guy is just trolling for hits to his blog.
    Reply
  •  
    Aug 25 10:41 AM
    Never trust a man named either Shelly or Toni....
    Reply
  •  
    Aug 25 10:45 AM
    AAPL has rejected the highs. Hard to believe that big smart money would define this equity as a screaming buy. I could envision a pile on to the downside for exactly the concerns posted here and the fact that the consumer is on life-support.
    Reply
  •  
    Aug 25 10:48 AM
    Apple stock will be $650.00 a share in 2009-2010, but this guy won't be employed since he doesn't know Apple.

    Read this link to the AAPL Manifesto, which I found on the web. It explains the Apple Stock in detail better than this "Seeking Alpha".

    web.me.com/filmflamtv/...
    Reply
  •  
    Aug 25 11:05 AM
    Apple is a great company. And every company has problems. But in case of Apple, those problems are increasing lately. Which increases the risk. Here are my thoughts on Apple:
    muddlinginvestor.blogs...

    To all flamers: I bought Apple stock in 1999 and 2000. Probably before you knew about the company at all.

    Disclosure: long AAPL.
    Reply
  •  
    Aug 25 11:06 AM
    Dirtt,

    Well, S&P does have this as a sell...

    Reply
  •  
    Aug 25 11:08 AM
    Wow... what an idiot. This "writer" is a walking cliche.

    "Bad to the Core"... How fricking original. Send this FUD peddler back to the loser table in the high school cafeteria.
    Reply
  •  
    Aug 25 11:24 AM
    Smear, that is all this is!
    Reply
  •  
    Aug 25 11:33 AM
    This article is ridiculous and misleading. To use in a report "nanos catching fire" when just 3 nanos overheated, not catching fire, out of 10's of millions sold!!!! Same with magsafe cables, it was a handful out of millions sold!!!! And then to throw in that they had a fire in one of their buildings??? The truth is, mobileme is working great for the overwhelming majority of users, leopard is a huge success (and Vista?), as is the iPhone. And by the way, Macs are still flying off the shelves and into the arms of ecstatic consumers. Guess what, when you buy a new car - "The average number of reported defects across the industry is 118 problems per 100 cars" according to JD Powers. Does that mean we shouldn't buy cars???? Shame on you for this piece of crap. There is no analysis here, just hype.
    Reply
  •  
    Aug 25 11:35 AM
    If the commentors and their nastiness and name calling doesn't turn you off AAPL, nothing will.

    AAPL users are by far the single biggest reason to avoid their products all together.
    Reply
  •  
    Aug 25 11:44 AM
    "Despite major problems in the last 18 months" - I would hardly call these problems "major" - The spotlight is on Apple and problems that affect 2 to 3 percent of users get blown up like some sort of disaster. This is way better than the industry norm of around 7 percent failure in electronic devices.

    Anyway, another typical article fanning the flames of those looking for a chink in the armor. EVERY other business in Apple's field wishes they had their 'problems'...
    Reply
  •  
    Aug 25 11:44 AM
    I long for the days of editors. I see now that there was a good reason journalism once had gatekeepers.
    Reply
  •  
    Aug 25 12:12 PM
    I couldn't even get past the inaccuracies in the first paragraph...a trendline based on a qurter??? Not to mention that this was a quarter that blew away analyst expectations. Stop trying to be a contrarian sensationalist and look at the facts...if anything there is an UPward trend in sales.
    Reply
  •  
    Aug 25 12:33 PM
    "Speaking of fire, the company also had a major problem roughly ten days ago when a fire erupted at its Research and Development building on the grounds of its headquarters on the infamous 1 Infinite Loop campus."

    If you want an example of how bogus this whole article is, look no further than this paragraph.

    The fire was apparently caused by some welders installing a new AC unit. The second floor of a building about a mile away from 1 Infinite Loop was affected. The building houses mostly internal support staff. Anyone with 30 seconds could pull up a heap of San Jose Mercury articles covering the whole thing.

    Trying to extrapolate that into "major problems" in its "R&D building" is really showing how gullible or perhaps outright malicious this blog author is .... naturally, the rest of his article is riddled with factual holes and wishful thinking too.
    Reply
  •  
    Aug 25 12:41 PM
    "The major problems began with the release of its new Leopard Operating System. While the system works great on new Macs (where it is pre-installed by the factory) users running older machines, who tried to make the update" ....I've installed Leopard on several G4 laptops and a G4 Sawtooth (1GHz upgraded) desktop and never had any issues. It's amazing what passes for 'truth' in journalism these days.
    Reply
  •  
    Aug 25 01:14 PM
    Talking about "...commentors and their nastiness and name calling..."--unti... 'bloggers' get it right, they're gonna pay for their BS. The reason Apple adherents are so vociferous is due to the steady misinformation that has been spread over the years by folks with an agenda.
    Reply
  •  
    Aug 25 01:15 PM
    I just put Leopard on an 'unsupported' machine. Works great, BTW.

    This article is one of the worst I have read, and I read too damned many of them... It's all FUD. Major problems for Apple in the past 18 months? You kidding me? You wanna see major problems, look at the PC industry (not including Apple). Cash that check from Bill Gates and Michael Dell before they go bankrupt. :-)

    Back to work...
    Reply
  •  
    Aug 25 01:24 PM
    I think is is hilarious that everyone is quick to jump on the negative bandwagon.
    For the record, the "issues" with the iPhone 3G are not entirely with Apple, but with the poor technology of AT&T. Apple only made the phone, but the service, and such are with AT&T, they provide the network.
    Secondly, if you look at the percentages that Apple has with their products in the industry, compared to others, they are by far above.
    This writer is simply trying to make a catchy headline and fill peoples heads with crap. As with ALL technology, some people are able to operate machines easily, and others have problems, this is the case if they are using a Mac or PC, it just the way it is!
    Lay off Apple, bash on Microsoft once in a while for its crappy OS. I have several Mac's and 1 PC, I have more problems with my PC than I EVER had with a MAC!!!
    Reply
  •  
    Aug 25 01:32 PM
    I've been an Apple evangelist since the 80's! The iPhone debacle may be the turning point for Apple. I'm right now trying to get out of the AT&T contract and eat the 5-iPhones I own just so I can make a phone call. I'm down to the basic install of iPhone software, doesn't seem to matter tho. It's a full time job just unbricking these phones...
    Reply
  •  
    Aug 25 01:56 PM
    This BOZO is so obvious and has thrown in every single thread of either minor one incident to resolved issues he could plaster at us. He is so obviously getting paid or trying to be so outrageous that his goober article would get a ton of reactions. The laugh is on you Mr. Bozo because most of us will only be buying AAPL and reaping the rewards. Put your money where your mouth is. Go buy MSFT or RIMM or DELL--do it ,I dare you ! Oh, I forgot, the money you'll make off this little gem will get you only 1 share probably. If you want to be cunning, you can't be so obvious. Don't play poker. Get a job. The quality of writers here is so low.
    Reply
  •  
    Aug 25 02:04 PM
    Disclosure: No Brains
    Reply
  •  
    Aug 25 02:22 PM
    From the photo, I suspect smallish, womanly hands.
    Reply
  •  
    Aug 25 02:41 PM
    I just find it amusing that SA bloggers went from always positive on this stock to almost all negative.
    Reply
  •  
    Aug 25 03:16 PM
    What bugs me about Seeking Alpha is they will let any clown post articles whether they have a analyst/journalist background in the subject or not. This author obviously only knows enough about what's happening with Apple to be dangerous. Hopefully after reviewing these reader comments he will "get the message" and move on and get a real job.
    Reply
  •  
    Aug 25 03:36 PM
    Yep, Apple is always under the microscope these days, and that's what it takes to get bad news on them. Connectivity problems have been very rare. Every little tiny prob gets overblown
    Oh, and I thought it was typical of AAPL to have a down quarter to quarter almost every year, but the down quarter has always been up good year over year. The down quarter ends up being "off season". Hardly a reason to be concerned.
    A good day to buy the stock though.
    Reply
  •  
    Aug 25 04:02 PM
    I am sorry to say that Yahoo is providing pride of place to commentary like this - this qualifies to a position lower than trash in the hierarchy of things. Actually, this sounds more like innuendo than facts - much like what our political parties practice.
    There is no logic nor rhyme in here. One or two more such articles and Seeking Alpha will be on my block list for it's not worth my time.
    Reply
  •  
    Aug 25 04:24 PM
    This is like trashing your kid for a grade slippage from A+ to an A.
    Reply
  •  
    Aug 25 04:57 PM
    Sensational headline not supported by the story. Okay, I "bit" and clicked.

    Nothing to see here. Move along.

    Disclosure: LONG on both stock and products.
    Reply
  •  
    Aug 25 05:41 PM
    Let's not dismiss this guy. Since the first Mac in 1984, I have been a great fan of Apple and Steve Jobs. Unfortunately, I too have been surprised to see the load of missteps that Apple has made with the release of the 3G phone. All Apple enthusiasts expect the best from Apple. This is why we love the company. If they begin to produce things less then "the best" this excellent reputation will erode, and their following will also erode. I truly hope that