Apple Computer Inc., battered by price competition and management turmoil, will lay off 2,500 of its 16,000 employees and undertake a "broad re-engineering" of its organization, the company said Tuesday.
While a major layoff had been expected, the extent of the job cuts went beyond most analysts' predictions. Apple said all areas of the company will be affected, but gave no details of the plan.
Apple's stock price, which has declined by 40% since January on investor fears of shrinking profit margins, fell 75 cents to $37.75 a share in nationwide over-the-counter trading Tuesday. For the quarter ended June 25, the company will take a charge analysts expect to be in the $250-million range--likely causing a loss for the quarter.
John Rossi, an analyst at San Francisco-based investment bank Robertson Stephens, called the layoffs "a pretty bold step" and predicted that several other personal computer makers, such as Compaq, will take similar actions soon.
Apple's announcement also renewed speculation that John Sculley, who resigned as chief executive last month but remains chairman, will soon leave the company. Apple says Sculley does not plan to leave.
Sculley's successor as CEO, Michael Spindler, has a reputation as a tough manager willing to make hard choices. And the scope of the pending layoffs--as well as the vague statements about a thorough "re-engineering" of the company--indicate that Spindler is losing no time in making his mark.
Apple has cut jobs periodically throughout its short but tumultuous history--most recently 1,500 layoffs in 1991--but the latest restructuring will for the first time affect the company's widespread research and development efforts as well as sales and marketing.
"The question in my mind is where and how they're going to cut R&D;," said Jonathan Seybold, head of a Malibu-based computer consulting firm. "Until now, R&D; has pretty much been sacrosanct, but Apple has too many things on its plate and has to decide what to concentrate on."
Apple's difficulties derive in large measure from the price war in the personal computer business, which has chopped PC prices nearly in half over the last year. All PC manufacturers, from Compaq and IBM to hundreds of garage-shop vendors, have been slashing costs furiously, and several companies have been forced into mergers or bankruptcy proceedings.
Until recently, Apple was able to command premium prices for its products, mainly the Macintosh, because they were far easier to use than IBM-compatible PCs. But Microsoft's Windows software emulates much of what made the Macintosh unique and forces Apple to compete head-on with cut-rate clone vendors.
The price competition is especially tough for Apple because, unlike the clone vendors, it must develop and support its own software and maintain a sizable R&D; operation. In 1992, the company spent $600 million on research and development, far more than any other PC company except IBM.
Much of that money has gone into two efforts that Apple hopes will enable it to escape the cruel world of commodity PCs. One is the Newton hand-held computer and associated software and service products.
The other is the Power PC, a computer design being developed with IBM Corp. and Motorola Inc. that will run Macintosh and other software. The companies hope to make it a standard for next-generation PCs.
Over the last two years, Sculley has devoted much of his attention to these new areas, where profitable software will play a much bigger role than low-margin hardware. Both the Newton and the Power PC are behind schedule, however, and Spindler and others inside the company have emphasized the importance of shoring up the mainstream Macintosh business rather than counting on those initiatives to revive profit.
The San Jose Mercury News last week reported that Apple's board had forced Sculley out of the CEO post over this difference in outlook and that he will resign as chairman when he returns from a six-week sabbatical this summer. Sculley maintains that it was his idea to step aside, but few in the industry expect him to be chairman much longer.
Analysts say the restructuring is likely to include cuts in marketing and sales and the consolidation of some divisions. In addition, Apple will probably reduce the number of Macintosh models, which has risen rapidly in recent years, and scale back some of its R&D; projects in favor of seeking technology from other vendors or through joint ventures.
Recent Developments at Apple * John Sculley resigns as chief executive but remains chairman. Michael Spindler is named CEO. * Apple says 2,500 will be laid off as the company reorganizes. * The company moves to license Macintosh operating software to others in preparation for a new computer generation based on high-speed Power PC chips. * A new division gears up for this fall's launch of the Newton "personal digital assistant," a mobile communications device. In conjunction, the company makes deals with communications and software companies and reportedly discusses a joint venture with AT&T.;