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Mon, 10 Nov 1997 14:50:53 -0500
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Business Week: November 17, 1997
Information Processing: COMPUTERS

Details of Apple's overhaul are leaking out

Steven P. Jobs may be one of computerdom's top showmen, but in recent weeks,
he has been more concerned with preventing headlines than making them. In a
series of meetings, Apple Computer Inc.'s interim chief executive has
threatened and cajoled employees not to leak news of his turnaround plans.
Phone calls inviting top customers to a Nov. 10 event didn't even give a hint
as to the reason. ``Steve is the ultimate event marketer and sees Apple's
recovery as a series of events,'' explains Apple's former vice-president for
marketing, Guerrino DeLuca, who left the computer maker on Sept. 17. ``He
doesn't want any of the oxygen to leak out before its time.''

   Too late. Jobs isn't talking, but <A HREF="aol://4344:109.B3553160.6668641.
563317470">Apple insiders, former employees, and suppliers are buzzing about
the big changes ahead. While Jobs may still have some surprises up his
sleeve, details are emerging that show he plans to recast Apple from industry
has-been to something more akin to highflier Dell Computer Corp., the model
PC maker of the future. Apple will take the first step when it launches a
line of blazingly fast Macintoshes that not only will rival the fastest PCs
but also will be the first Macs that Apple sells directly to consumers over
the phone and the Internet.

ALL HAIL DELL. And that's not all Apple may be borrowing from Dell. The
company is expected to take a quantum leap forward in adopting Dell's
direct-sales approach by building these speedy new Macs to match orders as
they're placed. This build-to-order strategy has been a huge success for
Dell, and Apple is betting that it, too, can cut costs, cater to customers,
and finally end its sorry record of product shortages and costly overruns.

   Even that may just be a warm-up. Down the road, Jobs has an even bigger
event planned. Rather than build a future solely around Apple's 13-year-old
Macintosh computer, Jobs is expected to bet the orchard on the nascent market
for so-called network computers, or NCs--diskless machines that sell for
around $500 and run applications dispatched by big computer servers.
Engineers are working overtime on a sleek new design for a ``MacNC,''
scheduled for release early next year.

   Insiders say Jobs and Oracle Corp. CEO Lawrence J. Ellison, a close friend
whom Jobs named to Apple's board in August soon after returning to the
computer maker, are talking about how Apple and Oracle might work together.
One possibility: an investment from Oracle to help fund development of Apple
network computers that would run Oracle software.

   As for Jobs, he won't budge on details before Nov. 10. In response to an
E-mail message asking him to comment on specific aspects of this story, Jobs
replied: ``Run the story if you must, but you are way off on much of it.
Sorry, I can't help.''

   His plan, however, could help Apple. As fix-it strategies go, this one is
bold. It's a far cry from the go-slow approach of Apple's former CEOs,
Gilbert F. Amelio and Michael Spindler. And it begs the question that has
been bandied about Silicon Valley for months now: Is Jobs going to stop
playing at CEO and actually take the job? The early word before the Nov. 5
board meeting was that Jobs had contacted directors by phone to say he would
not step in permanently. What's more, an insider says that Jobs has lighted
on a couple of candidates that may meet with the board before Thanksgiving.
As for Jobs becoming chairman, that's up in the air. ``To get the right
person [as CEO], they're going to do what they need to do,'' says the

   If Jobs doesn't execute his own radical plan, it could make this already
tricky strategy even tougher to pull off. After all, it has taken Compaq
Computer and Hewlett-Packard years to emulate Dell's build-to-order
efficiency, because it requires radical changes in the way parts are ordered
and delivered, as well as entire new computer systems to track components and
new processes.

   Meanwhile, even if demand for network computers takes off--which is far
from certain--Apple may find itself ill-equipped to compete. If it couldn't
find profits selling  Macs costing more than $1,500, how is Apple going to
squeeze profits from a low-cost network computer--while competing with such
manufacturing giants as Philips Electronics and Mitsubishi? ``We're talking
about a commodity product where Apple wouldn't own the technology anymore,''
says Michael K. Kwatinetz, who heads high-tech research for Deutsche Morgan
Grenfell Inc. ``I think Steve is great, but that's not anything he's ever
dealt with.''

   Still, it may be Apple's best chance for a comeback. Despite some
confidence-building moves--including a $150 million cash infusion from
Microsoft Corp. and the replacement of Apple's ineffective board with a slate
that includes Jobs, Ellison, and former IBM CFO Jerome B. York--<A HREF="aol:/
/4344:109.B3553161.6668666.563317470">Apple remains in big trouble. The
company lost $1 billion in the year ended on Sept. 26 as sales plummeted 28%,
to $7.1 billion. And the Mac's market share, which has dropped to 3% from
5.8% a year ago, is most likely to decline further since Apple is a no-show
in the booming market for sub-$1,500 PCs, which market researcher Computer
Intelligence Inc. predicts will account for 70% of home-computer sales this
holiday season.

SWIFT KNIFE. Even with the radical overhaul Jobs is proposing, the
42-year-old entrepreneur has little chance of restoring the Mac to its former
glory. Rather, insiders say he hopes to stanch sales declines by mid-1998 and
increase Mac profits by tightening up operations. By selling direct, Apple
will be able to cut out some resellers, who normally take a 7% cut, says
analyst Kwatinetz.

   To get all this done, Jobs is shaking Apple to its roots. Consider his
product strategy: Almost before ousted CEO Amelio had packed his bags last
July, Jobs was poring over Apple's product road map, slashing some 70% of new
projects, including inkjet printers and any desktop Mac not based on the new
product design, code-named Gossamer, that will be unveiled on Nov. 10. That
put the Gossamer Macs front and center. The new models, which will boast
chips as fast as 275 megahertz, are expected to be priced from $1,800 to

   By next January, at the annual MacWorld trade show, Jobs could be ready to
unveil his key to the future: Apple's first network computer, expected to be
priced from $700 to $900, say insiders. The initial effort will be more like
a halfway step, because the MacNC will run Apple's operating software. That
way, customers will be able to use their existing Mac applications as well as
slimmed-down applets based on the Java programming language. But should NCs
take off, Apple could move to a pure NC, which would have very little
resident software but would download applications and data off the network.
That could allow Apple to cut back on some of the more than $200 million it
spends on operating-system software and focus instead on exploiting its brand
and loyal-customer base in the education and publishing markets.

   Insiders say Jobs plans to make a big splash with the look of the MacNC.
Some who have seen prototypes say it's an all-in-one device that looks like
an elongated, egg-shaped monitor and will come in an eye-catching
color--possibly black, or even the six colors from the Apple logo. ``I don't
think Apple can win a tit-for-tat game [in the commodity PC market], so
Steve's got to change the rules of the game,'' says Bud Colligan, chairman of
software maker Macromedia Inc. ``And that's just what he's good at.''

COMPLEX SHIFT. What Apple has not been good at is executing its plans.
Experts also fear that Apple may be out of its depth. Take the build-to-order
plan, which will require an almost total makeover of Apple's operations. For
starters, Apple will need to put sophisticated testing processes in place to
make sure unique configurations will work, and it will need a revamped
information system to keep orders moving through the factory--at a time when
Apple has put on hold a $100 million upgrade of the company's information
systems, says a former exec. ``I hope to God [Jobs] delays it,'' he says,
``because I don't think they're ready.''

   What's more, Apple is at a distinct disadvantage when it comes to
build-to-order newbies such as Compaq and Hewlett-Packard. Those companies
have the clout to persuade key suppliers to set up shop just outside their
factories for just-in-time delivery of components. What's more, they can
choose from hundreds of suppliers of standard PC parts, such as computer
chips and sound cards. Apple, on the other hand, still requires many
Mac-specific parts.

   None of that is about to stop Jobs, though. Says a former Apple exec:
``It's a complete and total infatuation with Dell.'' Indeed, insiders say
Jobs was hurt when Michael S. Dell, founder of the giant PC direct-seller,
said during an industry conference that Apple had no chance for success. Jobs
fired off an E-mail asking Dell to explain, says an executive who saw the
electronic messages. When Dell replied that he hadn't meant any harm and was
just responding to a question, Jobs wrote back: ``CEOs are supposed to have
class. I can see that isn't an opinion you hold.'' Both Dell and Jobs
declined to comment.

   Jobs is hardly winning style points with everyone inside Apple. Known as
an enfant terrible before being ousted by former Apple CEO John Sculley in
1985, Jobs still exercises his sharp elbows. Criticism from Jobs is too much
for many executives, who had grown accustomed to Apple's consensus culture.
``Steve's the quickest man I've ever seen and the No.1 reason Apple has a
chance,'' says another recent departee. ``But I just couldn't be myself
anymore. He's the reason I left.''

   Jobs declines to respond to any specific criticism of his managment style,
but insists that any fault-finding ``is pretty unfair and gathered from
unhappy former employees.'' Yet he has already spawned an entirely new
lexicon at Apple. He sometimes defines people, to their faces, as either
``A-team players'' or ``bozos.'' And then there's the ``Jobsian hammer,''
which supposedly falls when Jobs sees something he doesn't like--say, badly
worded ad copy or a product he doesn't think is strategic. He almost nixed
the introduction of the new Newton MessagePad 2100 on Oct. 20 before Newton
staffers could argue that the product showed surprising promise in vertical

   And though Jobs can be guilty of micromanaging, sometimes his hands-on
approach pays off. Consider the Think Different ad campaign, which shows
photos of many of Jobs' personal heroes, including John Lennon and Albert
Einstein. Disgusted with Apple's ads of recent years, Jobs reunited with TBWA
Chiat/Day Chairman Lee Clow to recapture the spirit of their famous ``1984''
Orwellian spot, used to introduce the first Macintosh. Jobs personally called
Lennon's widow, Yoko Ono, and the Einstein estate to secure rights to his
favorite photos. He even wrote the script for the 60-second commercial--and
recorded the voiceover before deciding to go with actor Richard Dreyfus, says

   Jobs has captured the support of Apple's most important cast: its
engineers. True, he has killed perks such as the company-funded day-care
center and the generous sabbatical program. But staffers say Jobs is at last
proposing a game plan that might pull Apple out of its downward spiral. ``I
can see how he could rub people the wrong way,'' says 13-year Apple engineer
Buzz Dean, who recently left because his skills don't mesh with Apple's new
direction. ``But here's a person who realizes that decisions have to be made.
It has been a long time since we've had that.''

   Now, the showman just has to prove that his decisions are the right ones.

By Peter Burrows in Cupertino, Calif., with bureau reports

Copyright 1997 The McGraw-Hill Companies, Inc. All rights reserved. Any use
is subject to (1) terms and conditions of this service and (2) rules stated
under ``Read This First'' in the ``About Business Week'' area.

Transmitted: 11/10/97 1:20 PM (B3553159)