Apple Realigns Operations to Cut Costs, Bolster Stability

Jobs's Duties Reduced

By Patricia A. Bellew
The Wall Street Journal

June 3, 1985

CUPERTINO, Calif. -- Apple Computer Inc. said its chairman and co-founder, Steven P. Jobs, relinquished day-to-day operating responsibilities as part of a major reorganization aimed at lowering costs and restoring some stability to the company.

Officials of the nation's second-largest personal-computer maker also indicated that the company is considering another round of cost reductions, which could include more layoffs, plant closings and advertising cutbacks.

"Absolutely everything, except research and product development, is being reviewed," said William V. Campbell, executive vice president. "The difficult market conditions are going to continue."

The restructuring, which was announced Friday, splits Apple into two functional groups and dissolves its two product-oriented divisions. The company's new operations group will oversee the manufacturing and distribution of the Apple II and Macintosh personal computer lines, along with product development. Marketing and sales will be overseen by the second group; the product divisions previously had greater independence in marketing and sales. The changes are expected to lessen the intense rivalry between the product divisions and help trim costs.

Under the restructuring, Mr. Jobs loses direct control over the manufacturing and marketing of the Macintosh personal computer, the cornerstone product in Apple's risky plan to penetrate the office market. Mr. Jobs led the development team that designed and last year introduced the machine.

The 30-year-old Mr. Jobs, who held the post of general manager of Apple's Macintosh division, will retain the title of chairman. He currently holds 7 million, or 11.3%, of the company's 60 million shares outstanding, a stake valued at more than $400 million in mid-1983 at the peak of the personal-computer boom. Based on Apple's closing stock price Friday, Mr. Jobs's holding is valued at $120 million.

In national over-the-counter trading Friday, Apple closed at $17.375 a share, down 25 cents.

Of Mr. Jobs's new responsibilities, Apple would say only that its mercurial co-founder "will take on a more global role in new product innovations" and "will continue to be a creator of powerful ideas and the champion of Apple's spirit." Company officials said Mr. Jobs soon will be leaving for Europe, where he will spend several weeks overseeing formalities to kick off a new product line, and vacationing.

Mr. Jobs declined to comment on the change in his duties. But a former Apple senior manager and associate of Mr. Jobs said it was unlikely that the chairman had voluntarily agreed to give up his involvement in day-to-day operations.

"The Macintosh division was Steve Jobs's whole life," the former manager said. "The Macintosh consumed him. No one but the directors will ever know what went on in that board room (when the changes were approved). But imagine giving birth to a child, raising it through the good and bad times, paying for the best education money can buy. Then someone takes the child away and says you aren't a fit mother. He didn't walk away."

One of the chief architects of the restructuring apparently was John Sculley, Apple president and chief executive officer, whom Mr. Jobs wooed to Apple from PepsiCo Inc. two years ago.

Since October, rumors have been swirling around Silicon Valley that the two men were feuding over the direction of new-product research and other matters. Apple officials insist the rumors are false.

The restructuring centralizes control and places greater power in the hands of two top executives, one an Apple veteran and the other a seasoned marketing executive brought in by Mr. Sculley shortly after he joined the company.

Delbert W. Yocam, executive vice president and general manager of the Apple II division, becomes the group vice president of the new operations group.

Mr. Campbell, recruited by Mr. Sculley in late 1983 from Eastman Kodak Co., becomes the group executive in charge of sales and marketing of all Apple products. At Eastman Kodak, he was director of marketing, consumer products, Europe.

The changes make Apple structurally more like its archrival, International Business Machines Corp. "There's a role model for what Apple is doing," chuckled one analyst, "and its name is IBM."

One problem the reorganization is expected to resolve is the morale-sapping rivalry between the product divisions. Some insiders had complained that the Apple II division suffered from "second-class citizenship" within the company as Apple officials and the news media lavished attention on the Macintosh computer, Apple's showcase product. The popular, eight-year-old Apple II computer is Apple's prime moneymaker.

Morale hit a new low during the company's annual meeting in January, when Macintosh division employees got front-row seats to hear the zealous Mr. Jobs describe future Macintosh products. The Apple II division watched via closed-circuit television from a nearby auditorium.

Analysts have speculated that some directors, alarmed by the turmoil within Apple, the falling stock price and what they saw as the company's erratic behavior in recent months, may have pressed for the restructuring and for Mr. Jobs's removal from day-to-day management. None of the directors would return telephone calls to comment on the changes.

In a prepared statement, Mr. Sculley said the organizational and managerial changes were made to heighten the company's efficiency and to make Apple "a highly focused, unified and flexible company." Through a spokeswoman, Mr. Sculley declined to comment further.

"We all know who's in charge now," said one analyst. But others wondered if Mr. Sculley was up to the task of severely trimming back a company he was hired to help make grow.

"What Apple needs now is some hatchet men," said Gordon Casey, a computer-industry analyst with Merrill Lynch, Pierce, Fenner & Smith Inc. "Apple has told (analysts) to expect successive announcements of belt-tightening measures over the next month."

Apple declined to specify the additional cost reductions that may be coming, but the company already has moved to consolidate operations and cut costs. In recent weeks, Apple has laid off about 1,600 workers. The company also stopped production at its four factories for a week, closed some distribution and manufacturing facilities, and substantially cut its advertising budget, which last year was estimated to be $100 million.

But Apple in recent months has been suffering from more than sluggish markets. Erratic shifts in its business plan have left dealers and Wall Street baffled and concerned. Among the puzzling moves was Apple's decision to stop production of its top-of-the-line business computer, the Macintosh XL, formerly called Lisa, only a few months after repositioning the line and launching a marketing campaign to spur sales.

In addition, defections from the ranks of middle management and the engineering department have been heavy since January. Some company sources have blamed a culture clash between the more free-wheeling veterans and the button-down MBAs recruited since Mr. Sculley joined the company.

Although Apple remains strong financially -- the company had $194.2 million in cash as of March 29, when its second quarter ended, and is largely debt-free -- the recent outpouring of bad news has hurt the computer maker.

At cocktail parties in Silicon Valley, one of the hottest topics now is whether the company can continue as an independent concern and as a viable competitor in the brawling market for personal computers. Apple still must convince businesses in its target market, who value stability in suppliers, that the Macintosh can do what those customers want and that Apple can provide the support and service they demand.

The bad news also has had a more direct impact. "All the press about the company is affecting sales (of Apple's computers) tremendously," said Enzo Torresi, senior vice president of Businessland Inc., a San Jose, Calif.-based retail chain. "Our customers' concerns aren't with the product, they're with the company."

Copyright (c) 1985, Dow Jones & Co., Inc.