SAN FRANCISCO, Jan. 7 -- Apple Computer Inc. chief executive Steve Jobs opened the Macworld Expo convention here with a two-hour keynote speech that was both a product launch and a mission statement that Mac still matters.
He unveiled a pair of sleek new PowerBook laptops and faster wireless-networking gear. He also demonstrated an array of Mac-only programs, some of which may compete with popular Microsoft Corp. programs.
"We are going to do for the digital lifestyle applications what Microsoft Office did for productivity applications," Jobs said as he demonstrated a series of updates to Apple's media programs -- iTunes, iPhoto, iMovie and iDVD -- which enable them to work better together.
A person could add a soundtrack to a slide show and then create a DVD, for instance. Jobs pitched Apple's software, priced at $49 for the "iLife" bundle, as the preeminent solution for managing and enjoying all the digital content people have been accumulating -- MP3s, digital-camera pictures and movies recorded with a digital camcorder.
It's all part of Apple's plan to be the hub of all things digital, as it struggles to recapture a bigger share of the consumer, education and professional design markets.
Analysts, however, are pessimistic. Merrill Lynch, which is seeking investment banking business from Apple, resumed coverage of the company today and promptly advised investors to sell their shares; the stock closed down 5 cents, at $14.85 per share. Merrill's report also said that the company's strategy of relying on hit products -- the iMac computer, the iPod digital music player, the PowerBook laptop and so on -- that stand apart from the Windows-based competition puts it on the wrong side of price trends in the PC industry, which is increasingly becoming a commodity business.
"Apple's challenge is to try to find a balance between revenue growth and costs," Merrill Lynch analysts Steve Milunovich and Michael Hillmeyer wrote.
"Despite a relatively high gross margin, Apple is posting operating losses offset by interest income. We don't think their retail store strategy will work."
Apple accounts for 3.62 percent of personal computers shipped in 2001, according to IDC Research. The company shipped 11.5 percent of personal computers in 1994.
Apple says it doesn't need to conquer the rest of the industry -- it just needs to hold on to its niche of customers who value Apple's integration of hardware and software, even if it costs more than comparable PCs.
But Apple is trying to expand its market share. Its "switcher" television ads, which court Windows users to switch to Apple computers and its Macintosh operating system, has had some success; Jobs said in his keynote address that half of the computers sold in Apple's own stores went to Windows users.
"It's working," he said.
Some of Apple's newest products challenge some of Microsoft's established software.
For instance, Jobs demonstrated the first Web browser that Apple has developed in almost five years, even though Microsoft's Internet Explorer dominates the Web and has been preinstalled on Macs for years. The new browser, called Safari, available free on Apple's Web site in beta-test form, includes a new way to manage Web bookmarks, has the fastest performance of any Mac browser, and provides a clean interface plus one new feature that Jobs did not demonstrate: an option to block pop-up ads.
Jobs also unveiled $99 presentation software called Keynote that would compete directly with Microsoft's PowerPoint program.
Why would Apple go to the trouble of developing these two programs?
Avie Tevanian, Apple's vice president for software engineering, said, "We thought we could do a much better job in this space, especially taking advantage of our own technology."
Adam C. Engst, editor of the influential Mac newsletter TidBits, offered another explanation: "Steve Jobs is about control. He likes to control things. You've got to think he didn't like having a product from Microsoft on the [desktop] of every Mac that ships."
Tim McDonough, director of marketing for Microsoft's Mac Business Unit, said after the keynote speech that Microsoft had been briefed about these programs beforehand, and that the Apple-Microsoft relationship is "really good." He added that Internet Explorer will not lose its cherished spot on Mac hard drives; in fact, it will be joined there by a copy of a test version of Microsoft Office for Mac, which will be pre-installed on every Mac sold in North America.
Jobs closed the keynote by introducing two new PowerBook laptops, one big and one small. The big model is a $3,300 machine with a 17-inch display, a DVD-recorder drive, WiFi and Bluetooth wireless networking, and a keyboard that automatically illuminates itself in dark surroundings.
The little PowerBook sells for $1,799 with a 12-inch screen; it's the smallest laptop that Apple has sold.
The new software and hardware drew cheers from attendees at the Moscone Center. But Apple's problem has never been wowing Macworld attendees -- it's been drawing customers from the masses who don't pencil Macworld Expo into their calendars.
Staff writer Mike Musgrove in Washington contributed to this report.