Apple’s CEO Is Ousted as Steve Jobs’ Role Expands

Apple Computer, the onetime industry leader that has been struggling with declining market share and continued losses for the last several years, announced Wednesday that Chairman and Chief Executive Gilbert Amelio has resigned after a turbulent 17 months at the helm.

The Cupertino-based maker of Macintosh computers also said that Steve Jobs--who was himself ousted as chairman in 1985--will step up an advisory role he assumed in December 1996, when Apple acquired his Next Software Inc. But Jobs, who now heads Pixar Animation Studios, has repeatedly said he is not interested in returning to the company he co-founded in 1977 on a full-time basis.

The ouster raised anew questions of Apple’s ability to survive against an onslaught from rival PC makers offering cheaper machines that use Intel processors and Microsoft’s Windows operating systems.

Apple, which once topped the U.S. personal computer market, is now barely holding on at No. 5. The company that revolutionized personal computing with its point and click technology has seen its market share fall from 14.1% in 1993 to 6.7% in 1996, according to Dataquest, a market research firm in San Jose.

Amelio is the second chief executive to be forced out of office in the last year and a half. He came to Apple in February 1996 after the company’s board of directors ousted Michael Spindler, who had presided over continued heavy losses and speculation of a takeover.

Also departing Wednesday was Apple’s Chief Technology Officer Ellen Hancock, an Amelio protege, who was effectively demoted after the Next acquisition.

Observers had hoped that Amelio would repeat the remarkable turnaround he engineered as head of computer chip maker National Semiconductor.

In an effort to return Apple to profitability, Amelio was forced to initiate two major waves of layoffs, the last of which involved cutting one-third of the work force. He also streamlined the business and discontinued less-profitable products. But Apple’s board ultimately decided that the restructuring efforts were ineffective and that Amelio was unlikely to succeed in turning things around.

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“The board of Apple is not happy with Apple’s financial performance,” said Fred Anderson, Apple’s executive vice president and chief financial officer, who will assume responsibility for the company’s day-to-day operations until a new CEO is hired. “We’ve strengthened our cash position, we’ve lowered our break-even point, and we’ve improved product quality. But the fact is we’re not yet on a growth path, and we haven’t returned the company to sustainable profitability.”

Apple’s stock has languished in the $13 range--a 52-week low--despite the cost-cutting efforts that included more than 4,000 layoffs. In its heyday, the stock sold as high as $73.25. Apple shares closed at $13.69 in Nasdaq trading Wednesday before Amelio’s resignation was announced.

Amelio’s departure comes exactly one week before Apple will announce its quarterly financial results, leading analysts to suspect that the company’s losses will be even worse than previously projected. Earlier this year, Amelio was forced to push back his target date for bringing the company out of the red.

“Clearly, if this were going to be a good quarter or if Apple were moving in the right direction, Amelio would still be there,” said Scott Miller, an analyst with Dataquest. “You can expect things to be pretty ugly next week.”

Amelio, whose resignation was effective as of Wednesday, was not available for comment.

The search for a new chief executive will begin immediately, and the company is looking for a more charismatic leader who can reinvigorate employees, product developers and customers. Anderson said he expects the search to last at least three months.

“When a company goes through a transition like this, you’ve got to keep your faithful on board and find someone fairly charismatic to take everyone through the valley of death and emerge on the other side,” said Miller. Jobs demonstrated that ability earlier this year at Apple’s annual conference for software developers, Miller said. “In five minutes, he had the developer community on their feet and got everyone interested and motivated.”

Speculation has centered on whether Jobs would take on that role, although Anderson downplayed that possibility. Jobs could not be reached for comment.

“My belief is that he is very comfortable being the CEO of Pixar and devoting a substantial amount of time to Apple,” Anderson said. Jobs will focus on Apple’s product strategy, business partnerships and sales and marketing duties, Anderson said.

Apple employees were alerted to the news by a company-wide voice mail message delivered at 1:30 p.m. Wednesday. That was followed up by an electronic mail message that gave little hint as to what led the board of directors to act now.

“We were all in shock,” said an engineer who works on Rhapsody, the next-generation operating system for the Macintosh line of computers.

“This is coming at just the worst time because we have a really good product line right now, the school buying season and the Christmas season are coming up, and if everyone thinks Apple is an unstable company that won’t be around tomorrow, they won’t buy the product,” said the engineer, who asked not to be identified.

Indeed, such sentiments have put Apple in a vicious cycle of declining market share, losing key employees and seeing software developers abandon the platform. In the last year, half a dozen high-ranking executives have left or were pushed out of the company. In a major blow last week, top Macintosh clone maker Power Computing announced it would add Intel-Windows machines to its product lineup.

Those problems have combined to reinforce Apple’s image as a company with innovative technology and impressive products but without the managerial leadership to translate that into growing sales.

While some analysts credited Amelio for making nuts-and-bolts improvements to Apple’s balance sheet, he was widely criticized failing to focus on customers and act with a sense of urgency, instead letting Apple continue to slide further into oblivion.

“The company has been going through a bunch of convulsions, and Gil has not been able to really stem them to any great effect,” said Daniel Kunstler, a senior equity analyst with J.P. Morgan in San Francisco.

But other analysts said outside forces had doomed Amelio to failure from the start.

“Gil signed up for a job that was un-doable,” said Kurt King, an analyst with Montgomery Securities in San Francisco. “Apple is too far gone to be a realistic candidate for a turnaround. Gil may not have known it then, but it’s got to be pretty clear to him now.”

Whoever is eventually persuaded to replace Amelio will have to do some major soul-searching for Apple, analysts said. Many suggested that the company increase licensing deals with Macintosh clone makers. They also suggested that Apple identify and drop its less profitable product lines.

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While the declining stock prices have renewed speculation of a takeover, analysts insisted Apple is unlikely to sell out now.

Larry Ellison, the billionaire chief executive of database software company Oracle, this year went public with his interest in personally buying Apple. Though he ultimately decided against it, he enlisted the support of billionaire Saudi Prince Bin Talal Al-Waleed, who owns a 5% stake in Apple.

In addition, Apple earlier endured weeks of speculation that it would be taken over by Sun Microsystems, another Silicon Valley rival.

Fixing Apple “becomes more difficult by the day, and it’s hard to say whether there’s still a window of opportunity,” said Seymour Merrin, president of Merrin Information Systems, a Palo Alto company that tracks computer sales. “Clearly, Apple is a great franchise, and it is worth a good shot at saving.”