Sour Taste At Apple

Apple Computer is again in turmoil. Even the most loyal customers of the personal computer industry pioneer are wondering if it is on its last legs.

The sudden resignation this week of Gil Amelio, chairman and chief executive - apparently under pressure from fellow board members - a week before Apple is due to report its third-quarter results, is an ominous sign.

This latest episode in Apples struggles has returned the company to the headlines. Yet Apple no longer plays a leading role in the $200 billion personal computer industry. It is no longer a serious competitor in the business segment of the market. Neither is it a technology leader.

 

Apple still demands attention, though, if only as the faded icon of the Silicon Valleys high-technology entrepreneurial culture; the garage shop that grew into a multi-billion dollar enterprise and captured the worlds attention in the 1980s when it inspired hundreds of high-tech start-ups.

Apples future is now in unknown hands. The company is mounting an intensive search for a customer-focused chief executive, says Edgar Woolard Jr, a member of Apples board.

The most obvious candidate is Steve Jobs, Apples co-founder, who returned to the company early this year as a part-time adviser to Amelio.

Jobs will play an expanded role as a key adviser to Apples board and executive management team, the company says.

Some Apple loyalists hope Jobs will feel obliged to step forward to rescue the company he founded more than 20 years ago.

But he has repeatedly said he has no intention of returning full time. Instead he wants to devote his attention to his main business interest as chief executive of Pixar, the computer animation studio that made the 1995 hit film Toy Story.

Finding somebody else willing to stake his or her reputation on reviving Apple may be a tall order. If reports are true, Amelio is the third Apple chief executive to be ousted in the past four years.

He follows in the footsteps of Michael Spindler, who departed unceremoniously in early 1996, and John Sculley, who was forced out in 1993.

In each instance, Apples board acted only after the company had seen its sales fall sharply. By the time Amelio arrived 17 months ago, the company was on the brink of collapse. Its management was in disarray, its technology development stalled and its expenses were out of control.

A self-described transformation specialist, who had joined Apples board a year earlier, Amelio was initially hailed as the companys saviour. He took a dispassionate view and attempted to apply the same fixes he had used at National Semiconductor, his previous company.

He cut costs by sharply reducing the companys workforce and slimmed operations by selling off manufacturing facilities and bringing discipline to the companys research and development activities.

Through the acquisition last December of NeXt Software, Amelio also focused attention on the prospect of a new generation of system software, called Rhapsody, which he claimed would restore Apples competitive edge.

Yet Apples fundamental problem remains unsolved. Sales of its Macintosh personal computers are declining and its share of the world PC market, one well above 10 per cent, has dwindled to less than half that.

Apple executives offered no explanation for the timing of Amelios departure, except to say that the board was unhappy with the companys financial performance.

However, as industry analysts point out, this must have been the case for some time. Apple reported a $708 million loss for its second fiscal quarter, ended March 31.

It appears, rather, that Apples board members believe the company needs a more charismatic leader.

This person would be charged with building the value of its strong brand name to recreate the excitement that surrounded the companys technology in the 1980s and early 1990s.

This may not be possible. The idea that theyre going to go back to the past to hit a big home run and beat Microsoft is delusional, says Deve Winer, a software developer and online industry commentator.

Ironically, Apples board, often criticised for its lack of decisive action, may have made its worst error by acting now.

The gravest threat facing the company is uncertainty. Without a leader and with its future direction in question, Apple risks losing the support of the software developers who would create the next generation of application programs for the Macintosh.

Worse, it is severely testing the faith of its 20 million Macintosh users - an extraordinarily loyal band of customers who have stuck with Apple through its many crises.

The best option for Apple may now be to seek a buyer. Although executives insist the company is not for sale, its share price is languishing around a 12 year low of 13 1/16, giving it a market value of about $1.7 billion.

Officials at Sun Microsystems, involved in takeover talks with Apple in 1995, refused to comment on whether it may have any renewed interest.

Larry Ellison, the software multi-billionaire and founder of Oracle who earlier this year mooted the idea of a takeover bid for Apple, also greeted the latest developments with silence.

Amelio, at least, has been well compensated for his efforts. The former Apple executives five-year employment contract promised him salary and bonuses of about $2 million a year - whether or not he remained at the company.

While Apples share price has plunged from $28 3/8 to $13 1/16 in the 17 months since he took charge, Amelio will walk away with an estimated $7 million pay-off.