BY DAVID SPEAKMAN

As doors opened Monday to MacWorld attendees eager to be wooed by Apple Computer Inc.’s new products, brokerage firm Merrill Lynch recommended investors dump the stock.

Lackluster year-end sales left current Apple models on store shelves while this week new mobile computers were introduced, prompting Merrill Lynch analyst Michael Hillmeyer to post a sell rating — his company’s most negative opinion.

Apple’s “Switch” ad campaign and its costly 50 new retail stores haven’t delivered a significant sales uptick. Apple today claims about 25 million users worldwide — about 2 percent market share — well below its 10 percent share in 1990.

“We believe that Apple’s December quarter sales should be $1.45 billion — $50 million below the Street consensus,” Hillmeyer stated in a research report. “Although Apple makes great products, it’s fighting an uphill battle in a standardizing market.”

Stock analyst Kimberly Alexy of Prudential Securities, who attended MacWorld in San Francisco this week, views it “as a modest disappointment.”

Apple CEO Steve Jobs in his keynote Tuesday claimed 2003 as “The Year of the Notebook,” unveiling svelte 12- and 17-inch PowerBook laptop computers.

The new laptops are priced at $1,799 and $3,299, respectively, but some analysts, even those impressed with the stylish technology, believe the company needs even more lower-priced computers for mass appeal. Apple’s lowest cost hardware products are its $299 iPod, $799 iMac desktop and $999 iBook portable computer.

“While we agree that notebooks will be a significant driver, we maintain that Apple needs to hit the market with lower-priced products to stimulate buying — particularly in a tough consumer-spending environment,” Alexy says.

Apple’s history is a fight against standardization, but that drives up costs and computer prices. The innovative Cupertino company funds major expenses competitors don’t bear — developing its proprietary operating system, configuring hardware to work with Motorola and IBM’s non-standard PowerPC CPU and high-end industrial designs of visually-striking products that competitors rush to copy. Apple’s vanguard approach, such as including 802.11b wireless local area network technology in its computers five years ahead of competitors, gains a very loyal following but not a mass market.

In contrast, Apple’s competitors rely on Microsoft Windows for their operating system and Intel’s or AMD’s CPUs for their hardware — both industry standards. Going it alone, Apple cannot rely on economies of scale or manufacturing efficiencies to differentiate its product line because the company rarely uses off-the-shelf components.

On Tuesday, the day after Merrill Lynch’s sell recommendation, Apple closed at $14.85, down 5 cents.

BY DAVID SPEAKMAN

If eBay Inc. and Sony Corp. executives get their way, daytime television viewers nationwide will be tuning in to the new “eBay-TV” program this fall.

After more than two years in development limbo, San Jose’s eBay and Los Angeles-based Sony Pictures Television syndication studio are teaming to deliver a television show built around the online auction giant.

According to an eBay spokesperson, Sony’s sales team will try to sign up television-station groups in the annual convention of National Television Programming Executives (NATPE), which will be held Jan. 20-23 in New Orleans.

“We think we have great stories at eBay from our community,” says eBay’s Chris Donlay, who views the 5-day-a-week television series as a way to introduce the auction giant to a new audience.

Donlay says eBay and Sony are continuing to tinker with the show’s concept, which would run for either 30 or 60 minutes Monday through Friday in TV syndication.

The program is being touted as a topical magazine-type show — a combination of “Entertainment Tonight” and “Ripley’s Believe It or Not” with a little “Antiques Roadshow” plus celebrity guests with pet charity auctions thrown in for good measure.

Hosting duties will fall on Molly Pesce, best known for her appearances on Comedy Central’s “The Daily Show” on cable television.

But whether or not “eBay-TV” actually goes into production is dependent upon whether enough television stations in big markets — those with a population of more than 1 million — sign up to carry the show.

Rick Ellis, a TV critic with Birmingham, Ala.-based AllYourTV.com who plans to attend the NATPE convention, says the show could be a tough sell.

“This is one of those things that is a lot more interesting inside Silicon Valley than outside,” he says. “It’s hard to see why the average viewer would be compelled to watch the show.”

But eBay is sure the show will find an audience.

Ellis says the show’s distributor may not have the leverage to get enough big market stations to commit to an unproved format.

“I don’t see anything there that is compatible,” he says.

But the show’s producers are hoping they have an ace up their sleeve.

As part of the package for stations that sign up for the TV show, producers are planning personalized co-branded eBay Web pages and auction events.

For instance, a local station could auction tickets to station events or dinners with TV personalities.

To promote the local link, the show plans to include a 60-second window so local stations can advertise their co-branded auction Web pages — a rare practice in the world of syndicated programming.

Reports from television and auction industry media also say eBay will cough up $6 to local TV stations for each new user who subscribes to its service through the local TV station’s Web page.

Rumors of an eBay-themed television program first surfaced two years ago.

Originally tied to the ABC network, the show was to be developed by Los Angeles-based LMNO Productions — best known for the Fox network’s “Celebrity Boot Camp” reality series.

But in 2001, Sony bought LMNO’s interest in “eBay-TV” for an undisclosed amount and has been working exclusively with the online auction giant for more than a year.

Representatives from Sony did not return telephone calls for this story.

And that two-year process may take flight or die in New Orleans later this month.

Still, eBay is set to win either way.

“eBay has nothing to lose from it — even if the show fails,” AllYourTV.com’s Ellis says. “It won’t hurt the company; no one will blame eBay.”

BY DAVID SPEAKMAN

When Sun Microsystems Inc. won a major battle in its antitrust war with Redmond, Wash.-based Microsoft Corp. Dec. 23, it left many in the valley wondering whether to cheer for the local underdog.

U.S. District Judge J. Frederick Motz’s ruling says Microsoft must start shipping Sun-approved versions of Java in future Windows operating systems.

Santa Clara-based Sun claimed Microsoft had been including older versions or customized versions of Java that didn’t work according to contract requirements between the two companies.

The day after the ruling, Sun’s stock rose about 6 percent to $3.13 a share, where it stayed through the holidays. Microsoft’s shares fell less than 1 percent to $52.82.

“In the final analysis, the public interest in this case rests in assuring that free enterprise be genuinely free, untainted by the effects of antitrust violations,” Motz said, temporarily ordering Microsoft to deliver current versions of Java until a full injunction trial takes place later this month.

“This decision changes the dynamics of the distribution channel for Java technology,” said Mike Morris, Sun’s vice president and special counsel, in a written statement released Dec. 23, during his company’s annual holiday shutdown.

“It’s a victory for the Java community,” Morris said, “including developers, consumers and system vendors.”

Sun has been trying to use its newest Java technology, Java 2 Enterprise Edition (J2EE), to launch a Web services arm called Sun One, which would compete directly with Microsoft’s .Net initiative.

Motz says if Microsoft’s .Net dominates Web services, “it should be because of .Net’s superior qualities, not because Microsoft leveraged its PC monopoly to create market conditions in which it is unfairly advantaged.”

And as Wall Street analysts look at the situation, many think it could be years before a lucrative Java-based market for Sun sees the light of day.

Sun says it’s already making money from Java technology, but recent figures on Java are not available.

However, Richard Gardner, a San Francisco-based analyst with Salomon Smith Barney, says since Java developer tolls only make up about 1.5 percent of Sun’s revenue, which he estimates at $12.1 billion dollars for the fiscal year ending in June, it is too early to justify any material impact to revenue or earnings.

“Although it is not possible at this time to estimate any near-term financial advantages to Sun,” says Jay Stevens, analyst with New York-based Buckingham Research. “Sun needs a business model that enables the company to develop a comfortable profit stream from the Java line.”

But he says the long-term impact of this case is huge.

“In the world of standards, Microsoft — a proven monopolist — has proprietary control over the Windows environment,” Stevens says. “The future of the computer, communications, video, game and photo industries is at stake. Current legal decisions will determine the shape of these industries in 2010.”

Stevens says Motz’s ruling attempts to level the playing field between Microsoft and Sun as the case drags on through the courts — which could take a year or more.

Stevens says one of Sun’s largest partners on Java for enterprise is New York-based IBM, which is pairing Java with its popular Linux-based offerings.

“We view Java and Linux as technologies that provide alternatives to Microsoft products,” Stevens says.

But Microsoft has appealed Motz’s ruling.

“The implementation of [Motz’s] ruling may be delayed if Microsoft is successful in getting a stay order,” says Salomon’s Gardner. “This ruling could be overturned in the permanent injunction ruling.”

In the meantime, software writers — who may have felt forced into supporting Microsoft’s .Net technology — can now use Java freely thanks to Motz’s ruling.

New York-based Goldman Sachs analyst Laura Conigliaro believes this is the case.

“Developers will now feel more comfortable writing applications to the Java platform,” she says, pointing out the ruling does not affect Goldman Sachs’ outlook for Sun.

“While we expect Sun to gradually recover when IT spending picks up,” she says, “the company remains in a relatively weak competitive position given the shift toward lower-cost platforms and we believe Sun must make substantial changes to win back customers that have switched off of its systems.”

Conigliaro says if Sun is ultimately successful in the courts and Microsoft is forced in a “must carry” rule to include Java in Windows, other companies will benefit.

“IBM and others, including BEA [Systems Inc.] and Oracle [Corp.] have built profitable business models around Java with their middleware products,” Conigliaro says. Given the strength of IBM’s middleware and its involvement with Java, IBM may well end up prospering at least as much as Sun from this sort of ruling.”

But one prominent analyst says Sun’s recent courtroom win may be disguising the company’s primary hurdle.

“Nevertheless, [the legal victory] is still overshadowed by the concerns we have over the profit and market share compression Sun is facing in its core hardware business,” says Bill Shope, equity research analyst with J.P. Morgan Securities Inc. in New York.

BY DAVID SPEAKMAN

The long-awaited redevelopment of the Sunnyvale mall has been languishing in limbo for years, its owner recently filed bankruptcy and retailers are fleeing one of Silicon Valley’s whitest elephants.

“It’s not a normal year,” says Connie Verseles, manager of retail and hospitality at Sunnyvale’s Department of Community Development. “The mall’s vacancy rate is between 60 and 70 percent.”

In 1999, Sherman Oaks-based American Mall Properties LLC bought the aging Sunnyvale Town Center Mall and renamed it Silicon Valley WAVE (Walk and Village Entertainment). AMP worked with the city on a plan for a $100 million makeover to convert the indoor eyesore into an open-air center tied into the city’s popular Murphy Street historic district.

But the dot-com bust and tech recession have hit Sunnyvale hard and those plans were put on hold in August after San Diego National Bank moved to foreclose on the mall after it failed to make mortgage payments.

AMP filed for Chapter 11 bankruptcy protection in September, hoping to stave off lien holders and keep control of the mall.

“The [redevelopment] plan is still going forward,” Verseles says. Although it is being held up because of bankruptcy issues, the city has not changed its commitment to revitalize the area, she says.

Sunnyvale already has committed $2.5 million in municipal bonds to help build new parking garages for the mall.

Compounding the problem, an increasing number of shops are not renewing their leases. In 1999, when AMP bought the mall, it was 100 percent leased; now it’s down to 30 to 40 percent occupied.

Soon, Target and Macy’s will be the only anchor department stores as the mall loses J.C. Penney, which has prominent signs telling shoppers of its store closing sale.

J.C. Penney plans to close the store by the end of the month and sell the building by year end.

Rumors are that Wisconsin-based Kohl’s Department Stores is in talks with J.C. Penney to buy the Sunnyvale building as part of a Bay Area expansion.

A Kohl’s representative says her company is not ready to announce their plans for the Bay Area.

Mall management says the rules imposed by the court are keeping some new retailers, who want into the mall, away.

“The bankruptcy court does not allow us to enter into long-term five-year leases,” says Kenneth McGee, the mall’s general manager.

Many big-name retailers demand the stability guaranteed by leases of at least five years to offset moving and renovation costs.

In addition to J.C. Penney, two smaller retailers, the San Francisco Music Box Co. and mom-and-pop clothing retailer Little Angel, also are shutting their Sunnyvale doors. Neither company would comment.

Some nearby merchants, who did not wish to be quoted, say the bad reputation of a failing mall is keeping customers away.

Mall management disagrees.

“Our very unsophisticated manual count shows [car] lots were full and traffic was up,” McGee says.

He says the WAVE’s Chapter 11 reorganization could be complete by the end of March and then the mall is back in business and the redevelopment and remodeling plans will be in full swing again.

A landlord in bankruptcy is a
risk some small-business owners aren’t willing to take.

“Many small merchants are not renewing leases because of uncertainty,” Sunnyvale’s Verseles says. “Some of the mall tenants call [the city] to see what we can do for them.”

But the city’s hands also are tied up in bankruptcy court proceedings.

And that didn’t help local shoppers this holiday season.

“Where are all the stores?” asks Sunnyvale resident Joi Tzeng, pointing to a row of empty storefronts along the mall’s southern side. She took a 30-minute bus trip to the mall for holiday shopping.

Fellow Sunnyvale resident Tracey Tibbetts was dismayed by the emptiness of the shopping mall.

“It looks like a slum,” she says. “It looks really nasty; it’s going downhill rapidly.”

Tibbetts has been following Sunnyvale’s mall redevelopment since she moved within walking distance of it three years ago.

“I know we’re in a slump right now and in five or 10 years Sunnyvale’s downtown should be hopping with new business and people,” she says. “They need to get this bankruptcy thing resolved as soon as possible.”

BY DAVID SPEAKMAN

“If this gets any more popular, I may have to take out a loan to cover expansion costs,” says Lynn Schneider — not exactly words you’d expect from a businesswoman burned by the tech recession.

A unique combination of life experiences has one of Belmont’s newest entrepreneurs dusting herself off and starting her own online business, www.dentakit.com, selling a product for those who wear braces.

It started last December when Schneider decided to get braces for a crooked smile that has bothered her since childhood.

But, as a woman in her 40s, she feared lack of social acceptance as an adult with braces — something most people associate with adolescence.

“I wanted to connect with other adults who were going through the dilemma of braces,” she says. “I felt like an idiot walking up to teenagers to talk about what braces are like.”

According to the American Dental Association, only 15 percent of orthodontic patients are adults even though malocclusion or a “bad bite” may be more common among the over-18 set.

So, to find other adults with braces, Schneider turned to the Internet. “Some people pick up the phone book,” Schneider says, “I go to Google.”

What she found disappointed her. “Almost all the Web sites were for kids,” Schneider says, explaining why she started her own Web site, ArchWired at www.archwired.com.

On her site’s “Metal Mouth Forum,” adults from around the globe share product tips.

During this process, some forum members — including Schneider — developed travel kits for quick teeth cleaning on the run.

The Web site even made local news earlier this year, after actor Tom Cruise got braces to improve his already-multi-million dollar smile.

But, while her online hobby and Web site were taking flight, Schneider’s home finances were falling victim to the anemic economy.

“Projects used to fall into my lap,” she says, explaining how her 15-year old technical writing career died down this year.

“I was making nearly $100 an hour as a contract technical writer,” she said, explaining experience can’t compete with fresh college graduates who will settle for a fraction of that amount.

Her husband’s business also took a hit from lack of venture capital and like most investors during the dot-com boom years, their investments dwindled.

Then the innovation light bulb went off.

“One time I was in a restaurant’s public bathroom, and I was cleaning my teeth,” says Schneider, who was using her homemade kit. “And someone else who had braces asked me where I got my orthodontic hygiene kit.”

Schneider searched for a ready-made kit when she got her braces, but came up empty. So she developed her own with special dental picks and cleaners, collapsible mirror and cup, as well as toothbrush and toothpaste all in a compact carrying case.

After doing some wholesale pricing research and reviewing the numbers with her husband, a former software entrepreneur who she affectionately calls “Mr. Spreadsheet,” the couple decided to go for it. They made up a trial run of 300 kits, and will turn a profit if they sell the inventory at $25 each.

On $4,000 raised from credit cards and by selling unused computer equipment on eBay, DentaKit.com was funded in November and has been catering to orthodontists.

“No, I’ve never seen anything quite like this before,” Dr. Adrian Vogt, a San Mateo orthodontist says. “Some companies package things together, such as an emergency kit, but nothing for day-to-day use.”

In addition to professional orders, Individuals are buying, too.

“It’s very convenient,” says customer Ruthie Biermann, a baby boomer from Edison, N.J. “The kit is very small and looks like it could hold a Palm Pilot — no one has to know what’s in it.”

Biermann says it’s worth the extra expense. “It is impossible to keep a home made kit in a baggy clean.”

“It’s hard enough to keep kids organized, let alone take care of braces,” says Belmont resident Janet Leist, who bought a DentaKit for her 9-year-old daughter. “It is easy for my daughter to pack up and move from bathroom to bathroom.”

“Right now our goal is to make enough money to break even,” Schneider says, laughing, “but if there was enough profit to pay for my braces or beyond — that would be great.”