Apple Bites the Bullet, Will Lay Off 1,200 and Close 3 of Its 6 Plants
Apple Computer, in a hard-headed business move that does some violence to its storied up-with-people culture, announced Friday that it is eliminating 1,200 jobs and closing three of its six factories in response to the slump in the computer industry.
Apple said the severe retrenchment, considered long overdue by critics, will take Apple into the red in the current three-month period--a first for the company that has come to personify the high-technology miracle of Silicon Valley over the last nine years.
Among the threatened plants is one in Garden Grove that employs 329 and makes keyboard and “mouse” devices for Apple computers. Apple said it hopes to sell the plant to an unidentified vendor who would salvage “a significant portion” of the jobs.
The cutbacks were signaled two weeks ago when the company reorganized its divisions and moved chairman, co-founder and product whiz Steven Jobs aside, giving President John Sculley full managerial control. Friday’s actions were considered Sculley’s handiwork, and they make Apple one of the last computer firms to implement major cutbacks this year.
“They just reacted a little bit later. Sculley didn’t have complete control until last week,” said Richard J. Matlack, president of InfoCorp, a market research firm in Cupertino, Calif., where Apple is based. “He’s changing Apple from a religion to a business. When you’ve got cold, calculating competitors like IBM, you can’t beat them with voodoo.”
Earlier Action Sought
Matlack said the need for layoffs and plant closings was apparently a key issue in the power struggle that led to the diminution of Jobs’ role. Sculley wanted to act earlier, but Jobs resisted the notion that jobs must be carved from the company, Matlack said.
In a brief statement, Apple said it is closing its Carrollton, Tex., plant, near Dallas, one of its two U.S. computer assembly plants, and a small parts plant in Ireland as well as the Garden Grove plant. Production of the Apple IIc personal computer will be moved from Texas to the highly automated but underutilized Macintosh plant in Fremont, Calif., where both computers will now be built. About 290 jobs are being lost in Carrollton, Apple said.
The Apple IIe, which also was built at the Texas plant, will continue in production in Singapore. A Cork, Ireland, plant will continue to produce computers for the European market.
About 720 of the jobs being eliminated are production-related, Apple said. Among other segments, marketing will be particularly hard hit, Apple officials said, as the company moves to eliminate an overlap in functions that resulted from the recent merging of the Apple II and Macintosh divisions.
About 250 jobs will be lost in the Santa Clara County area where Apple is headquartered.
Write-Down Planned
“The slump in the personal computer industry is significant, and Apple has taken aggressive steps to bring our organization in line with these conditions,” Sculley said.
Sculley said the cutbacks will “significantly reduce” the company’s break-even point. But he said a one-time write-down to cover the costs of the cutbacks will result in a loss this quarter.
Analyst John Dean of Montgomery Securities said that the company will probably break even on an operating basis in this and the next quarter but that the write-down--and the net loss--for the current quarter will be about $30 million.
Dean said that Apple will return to profitability in the October-December quarter and that the firm is financially sound because of its debt-free status and its $200 million in cash.
In the long term, however, analysts say Apple’s future rests on its success or failure in the office-computer market.
For the second quarter ended March 29, the company reported net income of $9.98 million, down 68% from the year-earlier quarter’s $30.8 million.
Dean and other analysts applauded the belt-tightening as Apple’s only responsible course, given the huge gap between the rosy expectations of personal computer firms and actual sales over the past 10 months.
The price of Apple stock, which has been heading down for several weeks, dropped 25 cents Friday to $14.75 on volume of 2.5 million shares.
Though Dataquest, another market research firm, continues to project a 37% increase in 1985 personal computer sales over last year, that is a far smaller growth rate than in previous years. Moreover, analyst Kenneth T. Lim said, Apple sales will increase only about 25% as it loses market share to IBM and some smaller competitors.
The shortfall between expectations and results is illustrated by Apple’s Macintosh plant in Fremont, Calif., designed to make 40,000 computers a month and then expanded to accommodate 80,000. But analyst Lim says Apple is selling only about 25,000 Macintosh machines a month. Even when production of the IIc is added--that computer is selling at a 30,000-a-month rate, Lim says--there would still be unused capacity.
“When you’re expecting 50% growth and you only get 25% growth, something’s got to give,” InfoCorp’s Matlack said.
This spring, however, the year-to-year comparisons grew worse each month until April, when industry personal computer sales actually fell about 12% below those of April, 1984--the first actual year-to-year reduction in monthly unit sales in the brief history of the personal computer.
Most of the weakness has occurred in business purchases of personal computers.
Figures for May haven’t been compiled yet. But William Campbell, newly promoted to executive vice president of sales at Apple, said he believes that industry growth has temporarily slowed to a relatively meager 10% or 15%.
“It’s our assumption that this will continue over at least the next couple of quarters,” he said. “We have set our break-even rate to reflect the current sales rate.”
He wouldn’t elaborate and declined to say when Apple expects to return to the black.
As with many other young high-technology firms that prided themselves on supposed “no layoff” policies but were forced by economics to slash jobs, Apple said it will do what it can to help the former employees. But company officials refused to say how much severance pay employees will receive except that the amount will be based on seniority.
Apple said that it will help workers find other jobs and that workers get to keep their company-supplied computers.
Affected workers were notified in “one-on-one meetings” with managers at headquarters Friday morning, Campbell said, and most Apple offices closed at 2 p.m. In Garden Grove, employees got most of the day off “to give them time to absorb the information.”
“The mood around here is very somber,” Campbell said. “Yes, we do have a unique culture here at Apple, and it’s a very people-sensitive culture. Today we did what was probably the most difficult thing that’s happened in Apple’s short history.”
APPLE COMPUTER AT A GLANCE In millions for years ending in September
1984 1983 1982 1981 1980 Revenue $1,516 $983 $583 $335 $117 Net Income $64 $77 $61 $39 $12
