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July 28, 1997updated 05 Sep 2016 12:04pm

FIRST BOSTON ANALYSTS SAY APPLE SHOULD BUILD TO ORDER

By CBR Staff Writer

Credit Suisse First Boston Corp analysts believe Apple Computer Inc’s most pressing problem is the requirement to re-engineer its manufacturing and distribution operation. It says the only way Apple can hope to start earning a return on its invested capital is to flip-flop over to the PC industry’s successful build-to- order model, most recently embraced by market leader Compaq Computer Corp. As Apple has no experience in this, the bank suggests it outsource the whole task, lock, stock and barrel, to a third party such as Gateway 2000 Inc. That would eliminate the 15% it would otherwise pay to its (affected) channel partners, reduce production costs (the bank estimates a third party’s manufacturing costs would be 8% lower than Apple’s), reduce R&D spending by 20%, selling, general and administrative expenses by 50%, and turn capital at a faster rate, enabling its manufacturing partner to make money on small margins and enable Apple to apply its freed-up manufacturing capital to new products. While Apple has implemented the indirect selling model arguably in a more inept fashion than any other PC company, it thinks the company should encourage a dedicated Mac retail sales channel. It could price direct sales to end-users in line with retail prices, eliminating the perception the company is undercutting its dealers and effectively pocketing the dealer markup. In short we are confident that Apple could succeed where other companies have failed because it effectively owns the Macintosh platform.

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