Apple Expected to Cut 25% of Its Staff


Just weeks after reporting one of its biggest losses in company history, Apple Computer Inc. on Monday is expected to announce a sweeping reorganization that will include laying off a quarter of its staff and creating a position on the decision-making executive council for Apple’s legendary co-founder, Steven Jobs.

Jobs rejoined Apple as an informal technology advisor to Chairman and Chief Executive Gilbert Amelio in late December as part of the computer maker’s deal to acquire Next Software Inc. Software from Next, which was founded by Jobs after he was ousted from Apple, will form the basis of a radically new version of Apple’s Macintosh operating system.

As many as 3,000 employees out of 13,000 will be laid off, and a hiring freeze will be imposed in an effort to bring the company’s costs in line with dramatically diminishing sales.


As part of Amelio’s restructuring, sources said late Friday, Apple’s half a dozen business units will be streamlined into three product divisions focusing on key market segments: desktop publishing, Internet content creation and education, where Apple continues to have a strong constituency.

Under the old structure, the business units operated almost as separate companies, each with their own marketing and engineering organization. Amelio will create an umbrella marketing and research and development organization to serve its three divisions.

Final details of the reorganization were being worked out Friday. An announcement is scheduled for Monday, two days before Apple’s shareholder meeting at company headquarters in Cupertino, Calif.

The restructuring, the second since Amelio took over the troubled computer maker a year ago, is an attempt to cut overhead by 20% so Apple could be profitable on between $7 billion and $8 billion in annual sales, down from the $9.83 billion it posted only a year ago.

Amelio must stem the erosion of sales and guide Apple through what is perhaps the greatest product transition in the company’s history: upgrading the Macintosh operating system, which revolutionized the PC and put Apple on the map. Last summer, Amelio and Apple’s chief technology officer, Ellen Hancock, pulled the plug on Copland, Apple’s $500-million project to upgrade the Macintosh operating system, when it became obvious it could not be finished by the end of 1996, despite years of work.

But insiders say Jobs and Hancock have argued bitterly over the “kernel,” the code that will become the core of the operating system. Jobs has pushed Hancock to swiftly adopt Next’s kernel and move to other pieces of the software, especially the modification needed to make Next’s software compatible with that of the Macintosh. Apple has promised that new machines would be able to run older Macintosh applications in a window on the computer’s screen.


But Hancock is conducting a study of Next’s kernel, comparing it with Copland’s as well as Sun Microsystems Inc.’s Solaris. She had promised that a decision on a kernel would be made by the end of January, but nothing has been announced. Should Hancock choose a kernel other than Next’s, Apple’s engineers would face the difficult job of merging software from two different sources.

“What Steve does best is stir the pot,” said a source close to both Jobs and Hancock. “You know Steve is his way or no way.”

With an aggressive delivery schedule--software developers have been promised a preliminary version of the software as early as summer and a completed version by the end of the year--time is of the essence.

“To pull this off, they’re going to have to execute brilliantly,” said John Warnock, chairman of Adobe Systems Inc., a longtime Macintosh software developer. “They need to keep things as simple as possible if they’re going to be able to do it, which means keeping Next intact.”

Amelio, the self-described corporate “transformation” expert, has found Apple a stubborn company to turn around. After laying off 1,500 employees and posting a modest $25-million profit in the quarter ended in September, he pronounced the company on the road to recovery.

But Apple shocked Wall Street during the quarter ended in December--usually the most robust for personal computer makers--by posting a $120-million loss on sales of $2.1 billion, about a third less than revenue for the same quarter a year ago, as consumers stayed away from the Macintosh in droves.

Apple’s sales and market share are declining at an alarming rate. According to San Jose market research firm Dataquest Inc., Apple’s U.S. shipments plunged 30% in 1996 while PC shipments overall increased by 17.8%.

At a company meeting two weeks ago, Amelio’s frustration with earnings was evident, and he took sharp aim at Apple’s ineffective marketing efforts. “It’s very tempting when you’ve got a bloody nose to back away from the fight,” Amelio told employees. “That is exactly the time when you’ve got to go back at it with renewed vigor. I’ve told our marketing folks that I don’t want anymore of this wimp [nonsense].”

As part of its new strategy, Apple will continue to improve its existing software and is expected to introduce a new line of computers next month, including a $999 version of the Macintosh and a new version of its PowerBook portable computer, a product in scarce supply after quality problems forced its recall. On Friday, Apple announced price cuts of up to 27% across much of its product line.

Amelio is considering a line of servers, the large machines that orchestrate computer networks, based on Intel microprocessors and running Windows NT, a more powerful version of Microsoft’s desktop operating system.

“We need to rekindle the faith, maintain the faith and maybe even get a few converts,” Amelio said in an interview. “I think customers are hungry for more than a new operating system.

“People want to know you have a future, but they don’t necessarily need to have it today,” he said.

Apple shares closed Friday at $16.625 on Nasdaq, down 12.5 cents.