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Apple founder Steve Jobs introduces the iPod. Image: The Apple History Channel/YouTube/2001: A Space Odyssey

2001: An Apple Odyssey

Ernie Smith

This week, it was reported that Apple had its first year-over-year sales loss since 2001. But the Apple of 2016—defined by smartphones, a little boring—is not the Apple of 2001.

Apple founder Steve Jobs introduces the iPod. Image: The Apple History Channel/YouTube/2001: A Space Odyssey

A lot about Apple has changed since 2001, but one thing that hasn't are the haters.

Exactly 15 years ago this week, Apple released the iPod, a device that was met with a famously harsh one-line review from Slashdot founder Rob Malda: "No wireless. Less space than a nomad. Lame."

If you're an Apple fan, you know that quote inside and out, because it was a great example of the haters being wrong and a nice quote to pull out of your hat.

Clearly, the iPod was worth a lot more than that: It was the company's bridge to lucrative consumer electronics. But the Apple of 2001 wasn't built around that device. It was built around computers, and computers were slumping—and not just at Apple.

(It's worth remembering that 2001 was also the year that Hewlett-Packard merged with Compaq, a deal that was so awkward that HP eventually spun off its enterprise business from its PC business.)

That point, along with the iPod's 15th anniversary, got buried on Tuesday, when the company released its annual results—which showed a revenue decline for the first time since 2001. Despite the promise of new Mac hardware at an Apple event today, the historic revenue decline is what became the big headline this week—Apple's annual sales falling for the first time in 15 years.

The Apple of 2001 has little in common with the Apple of 2016.

But that simple comparison hides a much larger point: Barring the interest in industrial design and the rabid fanbase, the Apple of 2001 has little in common with the Apple of 2016. This year's model of Apple is a company of handheld devices, with a relatively small traditional computer business. The handheld device business is perhaps a bit boring these days, but it's still a solid moneymaker. The Apple of 2001, a few years out from killing off devices like the Apple Newton, only had computers to lean on for most of the year.

(To underline the point, let's compare their financial numbers: The Apple of 2001 was struggling, pulling in a net loss of $25 million on sales of $5.3 billion, according to the company's financial statement from that year. The Apple of 2016, with a net income of $45 billion on sales of $215 billion, might as well be General Electric in comparison. Apple's sales in 2001, not counting for inflation, were just 2.4 percent of the revenue the company made in 2016.)

In fact, it should be noted that the iPod had no effect on the company's 2001 revenue picture: Apple's fiscal year ended September 29 of that year, a few short weeks before the iPod helped start Apple's comeback story.

Apple's Cube Debacle

In many ways, 2001 was a pivotal year for Apple—one in which the earnings report was best defined by the G4 Cube, not the iPod. And the G4 Cube, released in July of 2000, was a disaster from a sales standpoint. It looked pretty, but it was costly ($1,799 at launch) and created for a market that didn't really exist—people who wanted to pay more for a smaller, sexier, computer.

"Every Mac site in the world quickly pointed out that the least expensive Cube, attractive as it was, cost $300 more than the far more expandable 400 MHz Power Mac G4," Low End Mac's Dan Knight recalled of the era in a 2014 retrospective piece. "Was it worth the extra money for at most 12% more speed and less expansion options? We didn't think so. We asked Apple to consider a less expensive Cube with a slower processor to provide a better value."

Image: Patrick Kuhl/Flickr CC By 2.0

Apple had big hopes for the Cube, and the Cube failed to meet them—the 2001 annual report stated that the device stumbled out of the gate in the fourth quarter of 2000.

"In combination with related displays, G4 Cube sales were approximately $90 million short of expectations," the company stated.

Apple tried shoring up the disappointing sales by cutting prices and upgrading the innards, but it ultimately proved fruitless.

In July of 2001, not even a full year on the market, Apple pulled the device, announcing the news in a press release with the headline "Apple Puts Power Mac G4 Cube on Ice."

These days, it's unheard of for Apple to remove a product from the market in this way—especially one as heavily hyped as the G4 Cube. The problem came down to the price.

"It was such a great product and won all of the awards, but it was targeted at a poor price-performance point," Needham & Company analyst Charles Wolf told The New York Times.

Perhaps the most telling sign of the Cube's failure to light the market on fire is the fact that the annual report doesn't report its sales numbers separately, instead combining them with total Power Mac sales.

A Year of Transition

The Cube wasn't the only part of Apple's line that was struggling.While the company was having success with its Powerbooks of the era, even its efforts to reach the education market—a traditional stronghold—had proven shaky. A July press release offered a cheerful picture of matters, highlighting an IDC report that found the company was at the top of the market.

That market had taken its lumps, however: In the fourth quarter of 2000, the company reported according to its 2001 annual report that sales were $60 million below expectations. While the company bounced back with a 7 percent increase in the education market in 2001, its success in that market highlighted weaknesses elsewhere: Sales of the iMac, which brought the company back to life in 1998, fell by 64 percent outside of the education market in fiscal 2001.

Image: Apple/The Internet Archive

Apple was working to right the ship in many ways, but the these successes wouldn't show themselves for a few years. The first commercial version of Mac OS X (now known as MacOS) had been released in March of 2001, and while the software would soon be seen by many analysts as the most advanced mainstream operating system on the market, the early editions of the software were heavily criticized—with the initial edition, Mac OS X 10.0, so shaky and bug-riddled that Apple offered free upgrades to 10.1, released that October. Many reviews of the initial version were, at best, lukewarm.

"In the end, OS X won't necessarily make Windows users switch, but it may make loyal Apple users sit a little taller in their chairs," Oliver Kaven wrote in PC Magazine that year.

Was Apple Slumping?

One thing that the Apple of 2001 did have in common with the Apple of 2016 is that there was quite a bit of chatter about Apple being in a slump.

One example: In December of that year, an article on the website Newsfactor argued that Apple wasn't as innovative or creative as it once was, in part because the company was moving away from creating its own standards and instead focusing on its own implementation of those standards, which Jupiter Media Metrix Vice President Ross Scott Rubin, who was quoted in the piece, called solid. The company, the story went, wasn't first to market with its own ideas, but would introduce new innovations just as the old ones were looking long in the tooth. (Something fans of the company's current laptop line might agree is true today.)

"Apple realizes that the world has become a more heterogeneous place because of the Web and that it's difficult to push standards," Rubin explained.

(Low End Mac's Dan Knight wrote a notably harsh response to this article, because that's what Apple fans do.)

"Apple has also become a master of cost control, something it has finally learned is a must for the survival of any industry Robin Hood."

On the other hand, some saw bright spots in the down news of 2001. In an October piece for Businessweek, longtime Apple scribe Charles Haddad pointed to the company's snow-white iBook, which had proven not only successful, but generous from a profit-margin standpoint.

"The iBook's success, coupled with good inventory control and cost cutting, gave Apple a 30.1% gross margin in the fourth quarter. No other computer company—not even Dell—can boast such margins," Haddad wrote.

Haddad focused his positivity not on the down year overall, but the prior six months for Apple, which looked a little brighter, with less impact felt from the G4 Cube and more coming from the company's line of laptops. He pointed to the fact that the PC industry overall was slumping, and despite this, Apple was creating products that were driving profits. He argued that the firm had learned something from Dell, which maintained profitability by keeping costs down.

"Apple has also become a master of cost control, something it has finally learned is a must for the survival of any industry Robin Hood," he added.

Image: Apple/The Internet Archive

Soon enough, Apple found its way out of the slump. After the first quarter of 2002 (which was a bit weak, but much better than the prior year), the company's guidance suggested it was about to see a major surge in sales—the numbers were bullish from Apple for the first time in a while, with things (including the iPod) finally starting to click.

"The quarter itself wasn't necessarily great," Lehman Brothers analyst Daniel Niles told MacWorld. "But the guidance (for the coming quarter) was phenomenal."

And phenomenal it was, year after year, for nearly 15 years.

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