Again, Apple Responds by Meeting Change Head-On
Apple Computer is in crisis again. In a hectic week, its highly visible chairman John Sculley stepped aside as chief executive and Apple directors met in an extraordinary board meeting to name Michael Spindler, Apple’s president, as the CEO.
Their action resolves a simmering dispute between Spindler and Sculley about Apple’s immediate direction. It could be a case of this young company once again getting the right person for the job.
At the same time, the directors asked Sculley to stay on as chairman. Even if he doesn’t stay long, that’s a sensible move because Apple needs all the help it can get to solve its problems--even to survive.
Apple, the feisty outfit that remade the world after two guys built a personal computer in a garage, is dancing on the brink today--despite $7 billion in annual revenues from selling some of the most popular computers in the world.
Apple stock, which lost 25 cents to close at $41 on Friday, has fallen 25% since June 9 when the company announced that earnings will be hurt by price cutting in the computer business. A restructuring lies ahead. There will be layoffs and shifting of operations to cut expenses. Yet the research and development budget--$600 million last year--will be largely spared because that is Apple’s ticket to tomorrow, if one of its handicaps today.
Apple’s dilemma is an object lesson in just how tough business is these days. But if by restructuring, Apple can protect its core computer business and its unmatched technological competence, then look for the company to come back as it has done before.
But first to Apple’s current plight and paradox. The company is selling more computers than ever before and customers rave about the Macintosh and the Apple PowerBook portables. But Apple is up against hosts of companies, from IBM to Compaq and Dell, that all sell personal computers powered by Intel microprocessors and informed by Microsoft software, which dominate the market.
The connections are golden for Apple’s competitors. New features for Compaq and Dell computers are essentially provided by Intel and Microsoft, which allows Compaq to spend only 4% of its sales on research and development, and Dell to spend 2%.
Apple spends 8.5% of its sales on research, which makes its products easier to use and gives them innovative features. But many customers no longer want to pay a premium for Apple’s better computers, so the company must reduce its prices, and profits.
And that hurts, particularly when Apple is playing catch-up ball already: There are almost 100 million PCs of the IBM-Compaq-Dell variety in use, compared to roughly 12 million Apples.
Yet Apple must keep spending on research. Otherwise it won’t come up with innovations to attract customers and to persuade independent program writers to devise software for Apple computers. And getting software written for the Mac has become a growing problem as competitor Microsoft improves its Windows operating system.
The bottom line in Spindler’s thinking is that Apple must defend its Macintosh-based computer business, where it now has a 13% worldwide market share, so that it will have the customer-base and financial muscle to move into the newer areas of computing and communications.
Spindler’s growing differences with Sculley, say sources in Silicon Valley, were over the latter’s public emphasis on Apple’s Newton personal communicator and other experimental products. Spindler and others in this high-tech hotbed thought Sculley was painting Apple too much as a consumer products company and confusing its marketing message to industry.
The obvious truth is there were human disputes and probably some jealousies at the top of Apple, which the board has now resolved.
The more important technical truth is that Apple’s research spending has given it breakthroughs in the cutting-edge technologies such as personal communicators and multimedia graphics that are about to change the computer business profoundly. The new era “will be a time of machines talking to machines in support of human needs,” say experts here. And Apple could shine in that new world. But first it must survive.
“How Apple executes its near-term challenges will determine its long-term outlook,” says analyst Lucy Painter of Salomon Bros.
And that’s where Michael Spindler comes in. A 13-year veteran of Apple--which was founded only in 1977--Spindler built the company’s successful European operation before coming to Cupertino headquarters in 1990 as president. Sculley ceded control of day-to-day operations to Spindler at that time because sales were lagging. He soon had them rising, with the help of the enormously successful PowerBook, which debuted in 1991.
Spindler is a survivor. Born 50 years ago in war-torn Germany, he remembers scrabbling for food with his mother in the grim early postwar years.
Spindler favors alliances to help with development costs. One of his first acts as president years ago was to secure Apple’s technological alliance with IBM, in which, along with Motorola, the companies are developing the Power microprocessor for new workstations. In the next few years the alliance will produce advanced multimedia products.
Will Apple make it? Yes is the smart bet in Silicon Valley, where they admiringly call Apple a company that is open to change. Maybe that’s why Apple so often has come up with the right person at the right time.
In 1983, Sculley came in to manage and implement the Macintosh vision of co-founder Steve Jobs. In recent years, as Spindler has expanded sales here and abroad, Sculley has been an evangelist for Apple technology, and a valuable one. It’s a nice touch--even if Sculley does have rumored ambitions toward an ambassadorship--that the board asked him to stay on to see that technology take a still young Apple Computer into its newest era.
