Apple Computer Tries To Keep a Step Ahead
Wall Street disfavor, price war mar near-term prospects
FOR the last year, Apple Computer Inc. Chief Executive Officer John Sculley publicized the dawn of a new communications era and a wireless hand-held device, the "Newton," that could keep Apple at the industry forefront.
But now, just as this "personal digital assistant" is finally about to reach customers, the company's dreams for the future appear to be captive to mundane realities: an industry price war, unsatisfied shareholders, and uncertain markets.
Mr. Sculley, the charismatic marketing man who has led Apple for a decade, recently handed the CEO reins to Apple's No. 2 executive, Michael Spindler, a German engineer by background who will try to dig the company out of a financial rut while maintaining a viable long-term strategy.
In the 1980s, Apple was the audacious upstart that pioneered the mass market for desktop computers. As IBM Corporation and a host of IBM "clones" stampeded into the market, Apple held a small but profitable corner by building a reputation for easy-to-use, well designed products such as its Macintosh line.
Last year, as many rivals were slogging through hard times, Apple enjoyed remarkable success with its new portable computer, the Powerbook, which brought in $1 billion in revenue. But as computer prices continue to slide, Apple is joining IBM on the bumpy road of layoffs, management changes, and skidding stock prices:
* In a bid to boost its overall market share, Apple announced price cuts this week of up to 31 percent on some of its most popular machines.
* To restore profits that have been falling even as revenues grew, the company last week said it will lay off 2,500 workers, or 16 percent of its work force.
* Yet these changes, and the top-management shuffle, have yet to convince Wall Street that the company's prospects have improved. The stock price has fallen roughly by half from its 52-week high.
"It's going to take earnings" to restore investor confidence in the company, says Bruce Lupatkin, managing director for technology research at Hambrecht & Quist, a San Francisco investment house.
Mr. Spindler's imprint on the company, Mr. Lupatkin says, "is likely to be quite different" from that of Sculley, who built strategic relationships and set a long-term agenda. "Spindler is much more focused on the here and now."
Sculley "was the Lee Iacocca of computers," adds John Donovan, a senior analyst with WorkGroup Technologies, a Hampton, N.H., market research firm. "That's going to be a hard act to follow."
Sculley will remain as board chairman, and is expected to continue to forge alliances for the company.
"Spindler's first moves ... are the right ones," Mr. Donovan says. The price cuts have helped put the Cupertino, Calif., company's products in the same ballpark with other personal computers in a "ruthless commodity environment," he says. "A lot of companies are going to come out of the PC business this year," he predicts.
Lupatkin adds that Apple must consolidate its product line, which currently includes a number of similar products under different names, confusing customers.
But in this fast-changing industry, pricing and streamlining maneuvers alone will not be enough. Apple must make good on its research efforts and forge successful alliances to share investment risks with other companies as it seeks to open new markets.
One test that Lupatkin describes as "critical" will be the new operating-system software Apple is developing with IBM in a joint venture called Taligent. If successful, the software could help both Apple and IBM regain ground against Microsoft Corporation, the Redmond, Wash., company that now supplies the operating systems for most personal computers.
With its Windows software, Microsoft "closed the gap" with Apple by mimicking a key to Apple's appeal: the simple graphic format in which users perform tasks with a hand-held electronic "mouse." The Taligent software could reopen that gap.
The Newton represents another key strategy, but Lupatkin says this is a longer- term effort, because there is as yet no mass market for wireless communications. Apple is eyeing other potentially rich markets such as interactive television and speech-recognition software. But so are many other companies including Microsoft and IBM. Apple will need allies in industries such as entertainment and consumer electronics. "The challenge for Apple is to find breakthroughs," Donovan says. "When they've won big it' s been through a technology breakthrough."
The Powerbook is the latest example, winning fans with design features that make it comfortable to use.