Computer maker is in deep trouble


July 19, 1993|By Doug Bailey | Doug Bailey,Boston Globe

SAN JOSE, CALIF. — San Jose, Calif.--The oohs and aahs wafting out of the main ballroom at the Convention Center here mean the whiz kids from Apple Computer Inc. just took center stage with their latest high-tech gizmo, the Newton.

Just as their company was announcing huge layoffs, wage freezes and an executive shake-up intended to remake Apple from its core, the developers demonstrated what some say is the $7 billion company's future: a hand-held wonder that can, among other things, recognize handwriting and instantly transform anyone's scrawly cursive into typewritten text. Push another button and the message is sent to a fax machine anywhere in the world via a wireless cellular telephone link.

"This is just the beginning," said Scott Petry, a proud product manager from Apple's Personal Interactive Electronics division. Mr. Petry said the Newton also holds a 10,000-word dictionary, a stylebook, a scheduler, telephone directories, maps, calendars and more.

The show was classic Apple. A stunning new technology, elegantly cast and brilliantly packaged, literally being readied for the hands of consumers who aren't yet convinced they even need such a thing.

Mr. Petry and the other developers want to focus on the Newton and its great leap forward into the age of "personal digital assistants." The past and the present condition of the industry in which Apple competes is far less fuzzy and warm. In fact, it's a blood bath.

Despite the Newton, or maybe partly because of it, Apple is a company in trouble. No longer able to ignore the realities of a vicious and prolonged personal computer price war, Apple has to either join the fray or watch its share of the market, which has held steady at about 12 percent, get squeezed on one side by low-cost specialists such as Dell Computer Inc. and on the other by giants like IBM and Microsoft.

Morale inside Apple's Cupertino headquarters has slumped to an all-time low. Pink slips by the thousands are about to be handed out as disgruntled former employees and other company critics are already lamenting how the world's second-largest personal computer maker gave away its competitive advantages.

Apple's earnings in the second half of this year will fall far below last year's, company executives concede. Some analysts expect ple to report a fourth-quarter loss and rack up its worst financial year since 1985, when it also announced huge losses and layoffs.

On Friday, Apple's shares plunged $8.25, to $27.50, after the company reported a loss of $188.3 million, or $1.63 a share, for the third quarter.

Last month, Apple's board of directors, apparently impatient with Chairman John Sculley's tub-thumping for his vision of the "digital future" and his public schmoozing of Bill and Hillary Clinton, installed a 50-year-old German named Michael Spindler as Apple's new chief executive officer. Although the 54-year-old Mr. Sculley remains chairman, he will have little involvement in day-to-day operation, and there has been speculation that he could leave altogether later this year.

'End of an epoch'

Mr. Spindler has swung an ax through Apple, cutting more than 15 percent of its worldwide work force, or about 2,500 people. The cuts went deeper than some analysts and employees had expected. It signaled that he is serious about remaking Apple.

"This is the end of an epoch," said Mansoor Zakaria, publisher of California Business Magazine and chairman of MZ Group, a San Francisco data base company that does work for Apple. "What (( we're seeing is the end of the personal computer industry as we know it."

Cutting its work force was the first step, but now comes the hard part. To truly achieve his goals, company insiders believe Mr. Spindler will have to reinvent Apple and completely change the way it delivers its products and services. Associates say Mr. Spindler is convinced that the direct-marketing approach of such low-cost upstarts as Dell is the way to go. But that will mean bypassing Apple's army of salespeople, dealers, distributors and service representatives that it spent years building.

Furthermore, it appears Mr. Spindler is ready to license Apple's proprietary Macintosh computing system to other makers, a move critics say should have been done years ago when Apple was gorging itself on near-40 percent profit margins. Licensing the Mac operating system, the way IBM and Microsoft license their MS-DOS system, could flood the market with low-cost Macintosh clones that will compete circuit-to-circuit with Dell, Compaq and the other companies eating Apple's lunch.

Some Apple employees think the newfangled technologies could shelved while Apple reboots.

"The digital future can wait while we try to figure out what the company is going to look like in a year or two," said an Apple executive last week, who asked not to be identified. "We don't know anymore if we're a hardware company, a software company or a vaporware company."

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