Sculley Begins Reshaping Apple Right to the Core : Computers: Analysts say the latest executive shuffle is a long-overdue attempt to deal with the company’s woes. The chairman’s own reputation is at stake.
Apple Computer, once a symbol of brash, aggressive entrepreneurial success, has become a victim of swollen bureaucracy and sluggish technology. And Chairman John Sculley--his own reputation on the line--says he has finally had enough.
Bothered by unfocused marketing efforts, new-product delays and plunging profits, Sculley has announced layoffs, an executive suite shake-up and a firm intention to become directly involved in overseeing the company’s lagging product development process.
The latest shoe dropped this week, just days after Sculley criticized Apple’s new-product development. Jean-Louis Gassee, who headed those efforts for the last five years, apparently was unwilling to become Sculley’s scapegoat and decided to leave Apple. He is expected to depart by the end of the month.
Sculley’s decision to assert himself in product development and marketing--a critical move that several analysts recommended many months ago--comes at a crucial time for the 14-year-old personal computer pioneer.
Throughout the industry, computer sales are sagging and earnings are lackluster at best. Virtually every large computer maker--including International Business Machines, Compaq, Digital Equipment, Unisys and Wang Laboratories--reported problems of varying degrees last year, and analysts don’t expect to see much improvement until at least next year.
Meanwhile, at Apple headquarters in Cupertino, things aren’t much better. Leading edge technology and popular new products, long the pride of this Silicon Valley upstart, aren’t getting out the door fast enough to suit Sculley or a growing chorus of critics. Existing product lines are clearly showing signs of advanced age. And sales are slowing while profits are declining. For the first fiscal quarter ended Dec. 31, profits fell 11% from the prior-year period while sales grew at a mere 6%, far below the industry average and Apple’s own 26% growth rate just six months earlier.
Further--and perhaps even more ominous--competitors, led by IBM and Compaq, are increasingly catching up with the once trail-blazing technology offered by Apple’s Macintosh model, a PC system widely considered to be the easiest and most enjoyable to use.
“I want them to knock my socks off with something new, but they haven’t done it,” complained Richard Shaffer, editor of a personal computer newsletter. “They seem to have some difficulty making the right product choices, packaging the technology correctly and getting their message to the customers.”
Added Andrew Neff, a high-technology analyst at Bear, Stearns & Co. in New York: “Apple spent four times what Compaq did on research and development last year, but only got out about one-third the number of new products. There’s no excuse for it.”
Even Sculley has acknowledged that somewhere on its latest spurt to becoming a $5-billion-a-year company, Apple has lost focus and stalled under the weight of its 14,000-plus employee payroll and a slowing worldwide appetite for computers.
Though Sculley’s diagnosis of Apple’s current ills was months in the making, his prescription and its execution came quickly.
Over the last several weeks, Sculley forced out the unpopular president of U.S. operations, Allen Z. Loren, and replaced him with Michael H. Spindler, the architect of the company’s successful European sales strategy. He announced pending layoffs of an unspecified number of Apple employees, and started looking over Gassee’s shoulder, apparently prompting Gassee’s departure.
“I want to compress the decision-making time and I want better-focused marketing,” Sculley said in an interview preceding last week’s annual meeting.
“It’s not a question of our engineers. . . . We have many things under development in our labs. The issue is how do we move more things from the research and development phase to the product phase. That’s where I want to turn up the heat.”
Insiders recall that the last time Sculley made his presence so visible within the company was in 1985, another down year in the computer industry and the worst ever for Apple. Although the company had introduced the Macintosh the year before, it was still floundering for a marketing strategy to spur its disappointing sales.
Sculley, then Apple’s president, moved quickly that time. Within a six-month period, he ousted Apple chairman and co-founder Steven P. Jobs, laid off about 20% of the company’s work force and focused the company’s agenda on making the under-recognized Macintosh more accepted among businesses.
The payoff came quickly. In January, 1986, Apple introduced the Macintosh Plus, a mainstay in the current product line-up and the best-selling Mac model to this day. Other models and accessories quickly followed and over succeeding years, the company grew from $1 billion in sales to more than $5 billion last year.
The turnaround earned Sculley, a former Pepsico president and marketing whiz, high marks. It also propelled him into the top ranks of U.S. high-tech executives and became the basis of “Odyssey,” his autobiography that is considered required reading among Apple employees.
The current situation, although hardly as bleak as it was five years ago, has taken some of the burnish off Sculley’s reputation as a stellar manager, and left several analysts perplexed about why he failed to recognize the problems in Apple’s product line sooner.
“There’s no question but that the product line has been mismanaged,” said Stewart Alsop, a PC newsletter publisher in the Silicon Valley. Alsop argued that the company has wrongly focused its attentions exclusively at the high end of the Macintosh product line, while abandoning the middle range and ignoring the low end completely.
“They forgot that they couldn’t just be a high-end purveyor for the power user,” Alsop said. “They need to provide the total solution to be successful.”
Although analysts say they had been telling Sculley and his now-departed lieutenants this for months, the chairman has apparently now gotten the word.
Sculley said last week that one of the first moves in his “break out” strategy for renewed growth is speeding the introduction of a low-cost Macintosh, a machine with a price tag in the $1,000 range.
Insiders say that with Sculley’s full clout firmly behind it, the system--which would fill a gaping void in the Macintosh product line and attract first-time Mac customers--could hit the market as early as next fall.
Sculley’s reentry into Apple’s product and marketing process is widely welcomed both within and outside the company.
“These are tough times for Apple. . . . They have got to start speeding their new product development,” said Paul Norris, a market research analyst with the Gartner Group and former Apple employee. “Sculley has identified the right problem.”
Even top-level insiders admit that product development over the last few years has slowed and suffered. The problem, explained Larry Tessler, Apple’s vice president for research and development, is that the engineers and marketers have often taken too long to lock up the specifications of a given product.
The low-cost Mac is said to be a victim of just such a process. According to Tim Bajarin, a Silicon Valley market analyst and sometime Apple consultant, Sculley approved the basic product concept at least a year ago. But development languished as the engineers, product designers and marketing teams quibbled over features, intended users and pricing strategies.
Analysts say a Macintosh laptop model, finally introduced late last year to unenthusiastic reviews after two years in the labs, was another such victim.
“There have been innumerable reviews, rethinking and refocusing of products while they were still in the lab,” Tessler said, identifying no particular product. “So by the time you get around to actually doing the product, the competition had beaten us to it.”
Although getting a low-end Mac and other products out the door is an immediate priority, there are other--and perhaps more critical--challenges facing Apple.
Primary among them is what to do about the entire Macintosh product line, a question that Tessler and Gassee’s successor will no doubt wrestle with. The basic technology of the line, which accounted for more than $4 billion worth of Apple’s sales last fiscal year, was developed in the early 1980s, and has begun to show signs of its age.
Although Sculley and Tessler say replacement technologies are well under development in the research laboratories, they are reluctant to break away entirely from a product with more than 3 million users and a huge library of software.
For the time being, the issue has been put off while Apple has introduced incremental innovations that have steadily expanded uses for the Macintosh. But analysts say the potential pool of such advances is shrinking and express genuine concern that the key competitive edge that the Macintosh has enjoyed over its PC competitors--namely its easy-to-use features--is fast disappearing.
“There’s more happening here than management shuffling,” said Bruce Lupatkin, an analyst with Hambrecht & Quist in San Francisco. “The strategy hasn’t been working and it’s getting harder to differentiate Apple from the pack.”
GASSEE EXPECTED TO QUIT
The head of Apple Computer’s new-product development unit, Jean-Louis Gassee, is expected to resign shortly. D10
REVENUE
In billions. ‘83: 0.983. ‘84: 1.516. ‘85: 1.918. ‘86: 1.902. ‘87: 2.661. ‘88: 4.071. ‘89: 5.284.
PROFIT
In millions. ‘83: 76.7. ‘84: 64.1. ‘85: 61.2. ‘86: 154. ‘87: 217.5. ‘88: 400.3. ‘89: 454.Source: Apple Computers
