On a Limb, Apple Must Manage Its Strengths
Apple Computer, less a symbol of entrepreneurship than of poorly managed middle age these days, is in trouble again.
The company’s chief financial officer resigned last week saying Apple was doomed unless it merged with IBM or another company.
President Michael Spindler and Chairman A.C. (Mike) Markkula--Apple’s largest shareholder--disagreed. Markkula said Apple would continue working independently on “the exciting opportunities we face in the dynamic personal computer industry.”
Spindler and Markkula actually are not opposed to a partnership, even a merger, to strengthen Apple. Because they know that alone or in tandem, Apple must change. It must focus on its software strengths, be willing to let go much of its hardware manufacturing and work harder if it is to survive, say experts.
“Apple still is a great company that achieves success through innovation, not copying,” says Jack D. Kuehler, the now-retired president of IBM who put together alliances on software and the Power PC microprocessor with Apple. “Michael Spindler is a hard-working, highly intelligent guy who can bring this company through.”
In fact, Apple is a historic company with contemporary lessons, both positive and negative, for all business. Its commitment to research and innovation sets an example--and may prove Apple’s salvation in this crisis.
But, also, the very uniqueness of its products insulated Apple executives from computer industry pressures and led to a string of blown opportunities.
So today, while many computer experts share Kuehler’s views of Apple, they also worry that the company has reached the point of no return. Only 8% of the world’s 125 million personal computers now are Apples. Almost all the rest are variations on the IBM PC, with Microsoft DOS and Windows operating systems.
So even though the Apples are excellent machines, with ingenious Macintosh operating systems and software, Apple is becoming an exotic afterthought as suppliers create programming and features for the dominant Microsoft models. Apple needs to add muscle through a link with IBM or another company.
But as much as competition from Microsoft, Apple’s problem is management. The company at present can’t supply all the Power Mac desktop and laptop computers the market wants because it planned badly and is short of components.
Such shortages occasionally hit all computer makers, but they’re chronic at Apple. Indeed, Silicon Valley suppliers say Apple’s people don’t know what parts to order. The company seems in disarray.
Yet Apple is not an adolescent start up, but a 19-year-old company with more than $10 billion in sales. It has one of the world’s best known brand names, a superior record of innovations, more than 14,000 employees and a market value of more than $4 billion.
Apple launched the personal computer industry in the late 1970s, when two young visionaries named Steve Jobs and Steve Wozniak produced the Apple I and II models. They named their company after the Beatles 1960s record label and introduced a different style to business.
From the start, Apple’s computers aimed for simplicity and ease of use; Jobs foresaw the enormous consumer market for computing that is only now emerging.
But Apple also committed a historic blunder. It refused to license other computer makers to use the bright Macintosh operating systems, developed in the 1980s. The restriction held down the market for Macintosh, and opened an opportunity for Microsoft, which devised Windows in imitation of Mac’s features.
“If Apple had licensed Mac software even four years ago, you’d have a different Microsoft and a different computer industry today,” says an expert.
Why didn’t Apple license the Mac systems? Because not doing so preserved high profits for the Macintosh computers Apple made and sold, which meant good salaries and bonuses for Apple’s legions of managers, say Silicon Valley analysts.
Prosperity lasted a while but was deceptive. Even as the ‘90s recession forced other computer makers, including IBM, to restructure, Apple enjoyed good profits. Lately, though, profits have retreated and the company is at a critical juncture.
But the tradition of innovation, resulting from years of heavy spending on research, is still its ace in the hole. Apple’s software just happens to suit the new world of the Internet. “The trend toward using personal computers for communications really favors Apple,” says Roger McNamee, head of Integral Capital Partners, an investment management firm in Menlo Park, Calif. “The Macintosh system lends itself to network access in ways that Windows hasn’t been able to match.”
However, the company must change or this advantage too will be wasted. Apple must focus on its strengths and--taking a leaf from AT&T;’s recent split up--it must let others handle its manufacturing. “It must concentrate on its software,” says computer consultant Bob Djurdjevic, of Annex Research in Phoenix. “Others can make the machines at lower costs than Apple.” The result will be a smaller but more focused company.
Apple’s challenges are formidable. In an industry driven by brutal price wars and constant change, it must earn enough to afford the research and development that keeps innovations coming.
But its opportunities are also impressive because Apple systems are especially suited to multimedia.
If it learns to move faster it can seize those opportunities. Right now Apple is working on a new operating system named Copland (after composer Aaron) that will run on all computers and have advanced features for communications and graphics. Copland is due in 1997, but Apple would be wise to get it out sooner.
Can Apple survive? Can a company that, as Jack Kuehler says, “succeeds through innovation rather than copying” survive in business today? Sure it can--and for all business and the American economy we better hope it can.
