Apple to Lay Off 1,300; Indicates More Will Follow
Apple Computer Inc. said Wednesday that it will lay off 1,300 employees and take a charge of at least $125 million in what it characterized as the “initial phase” of a restructuring aimed at restoring profitability.
Apple reported a loss of $69 million on sales of $3.1 billion for its fiscal first quarter ended Dec. 29, a loss $1 million larger than the beleaguered company projected last week. In the comparable quarter a year ago, Apple earned $188 million on sales of $2.8 billion.
Apple said it will probably post an operating loss for the second quarter along with the restructuring charge.
Wednesday’s announcement fell well short of the sweeping steps many analysts had expected and hoped for, but the company indicated that additional layoffs and other changes will come in the weeks and months ahead. A drawn-out restructuring is likely to exacerbate the brain drain that has plagued Apple for several years, and will do little to dampen speculation that Chief Executive Michael Spindler may soon be fired.
“Their performance would call for a dramatic change, and this is not a dramatic change,” industry analyst Pieter Hartsook said.
The new strategy announced Wednesday calls for Apple to concentrate on the lucrative niches where it already has a strong following, including desktop publishing, multimedia software development, education and the Internet. The unprofitable low end of the market will apparently be left mostly to companies that license the Apple Macintosh software to build Macintosh clones, and Apple promised “much broader” licensing of the software.
“We have begun strategies to fundamentally change our business model,” Spindler said in a statement. “In products, we intend to simplify our product portfolio so our offerings focus primarily on innovative, differentiated and best-of-class products in our key market segments in education, business and the home.”
The company also said it will reevaluate all of its strategic investments and overhaul its Internet strategy.
Apple’s financial performance has deteriorated dramatically over the last year as a result of management blunders and drastic price cutting aimed at keeping the Mac competitive with PCs that use Intel microprocessors and Microsoft operating software.
Some believe that Apple, which must support much higher research and development costs than PC companies that rely on Intel and Microsoft, simply cannot be competitive in the mass market and has no choice but to focus on niches. Apple’s gross margins fell from 20% in the fourth quarter of last year to 15% in the first quarter.
“For Apple to survive, it can’t live on 15% margins,” said Tim Bajarin, president of the Silicon Valley consulting firm Creative Strategies International. “Let the suckers have the low end; Apple will still collect $40 from the licensing fees on every box [the clone vendors] make.”
But others said Apple would find it difficult to build a viable business from market niches.
“I think to be a credible supplier you have to have a full line of products,” said Enzo Torresi, chairman of Mac clone start-up Power Computing. He said his company will not limit itself to lower-priced machines.
The layoffs announced Wednesday were considerably smaller than many had anticipated, amounting to about 8% of the company’s work force. The company has about 13,000 full-time employees and another 4,000 contractors, and the job cuts apply to both groups.
The company’s shares fell 56 cents to $34 on Nasdaq on Wednesday. Apple’s announcement came after financial markets had closed. Its stock dropped to $32.50 in after-hours trading.
