Apple Computer Is Aiming to Revive Growth

New Products Targeted at Engineering, Office Markets

By Brenton R. Schlender, Staff Reporter
The Wall Street Journal

June 4, 1986

CUPERTINO, Calif. -- A year after embarking on a wrenching retrenchment that closed plants, terminated nearly one-quarter of its work force and shuffled top management, a chastened Apple Computer Inc. is betting it can start growing again.

The personal computer maker is gearing up manufacturing, marketing and technical support for the introduction over the next 12 months of what John Sculley, chairman and chief executive officer, calls "more new products than Apple has introduced since the company was founded" about a decade ago.

Mr. Sculley is counting on the new products, which are expected to include a jazzed-up Apple II and more versatile Macintosh computers, along with new, solution-oriented marketing, to stir up Apple's sales, which tailed off markedly during the past year as a result of price-cutting and the slump dogging the entire computer industry. The idea is to aim systems that incorporate the new products at a variety of business, engineering, government, educational and home market niches.

To get the products off on the right foot, Apple has begun hiring new sales and technical employees. Apple also recently spent $15 million on a state-of-the-art supercomputer to help speed up product development -- part of a 71% increase in spending on research and development -- and ordered expensive, new advertising campaigns for the fall and winter.

"We have shown that we can cut our costs and improve our margins," says Mr. Sculley, the architect of Apple's reorganization. "Now we have to demonstrate we can grow revenues, not just profits."

That may be easier said than done. Apple has been known in the past for failing to deliver on marketing and new-product promises. And even if the new products make it on time, there's the question of whether Apple's dealers will be able to sell them to the elusive corporate, government and technical customers that the company has decided to court.

Apple's surge of new products comes at a crucial time. Although profit more than tripled for the first six months of fiscal 1986, sales of $942.8 million lagged 17% behind sales in the year-earlier period. The lower sales in part reflected the fact that sales of Apple II-series home computers, Apple's mainstay throughout its short history, slipped sharply. Indeed, during the second quarter the Apple II-series was overtaken for the first time as the company's biggest seller by the Macintosh.

"The Apple II is in danger of spiraling down and out," leaving Apple depending almost solely upon the the Macintosh series, says Michael Murphy, publisher of the California Technology Stock Letter.

Consequently, before it can think about growing in earnest, Apple first will have to offset sagging Apple II sales. To that end, the company is expected to announce in August or September enhanced versions of its Apple II line to help it compete during the Christmas season with inexpensive, yet more powerful machines from Commodore International Ltd. and Atari Corp.

The real challenge, however, is in developing and marketing new office-oriented products for the Macintosh, where Apple has had only limited success so far competing head-to-head with International Business Machines Corp.'s personal computers. And to that end, Apple is expected to announce by early 1987 a whole series of new Macintosh computers and accessories that will either plug gaps in its own product line, or beat IBM to certain niches in the business and engineering markets.

Specifically, Apple has practically promised an "open" version of the Macintosh that would allow customers to easily add accessories and memory capacity and otherwise enhance the machine as its needs change. Current Macintosh computers allow little room for customizing.

Perhaps more importantly, it will allow Apple to offer plug-in adapters of some sort that will enable a Macintosh to run software written for IBM and IBM-compatible machines or for Unix-based machines. Programs for Unix, an operating system developed by American Telephone & Telegraph Co., frequently are used for engineering and scientific problems.

Beyond that, analysts following Apple expect it to announce improved computer communications products, a range of larger video screens, and possibly even a color version of the Macintosh.

"Apple has about 18 different new products and about 18 different markets," says an art director who worked on a losing bid by Los Angeles-based Chiat/Day to handle Apple's new ad campaigns. "Both of the product lines -- Apple II and Macintosh -- are coming together . . . with open architecture all around, IBM compatibility and network capabilities," he adds. The theme is, "as John (Sculley) likes to say, one person and one computer transparently and elegantly connected to the world."

Much of the new advertising, which will be produced by the Madison Avenue firm BBDO International Inc., probably will emphasize how Apple computers offer solutions to specific business needs, rather than echo Mr. Sculley's rhapsodic vision of man and machine.

That means "Apple apparently has given up on the concept of being a broadline second manufacturer, and instead is looking for markets where an Apple is superior for specific applications," says Eugene Glazer, an analyst for Dean Witter Reynolds Inc. "You need an awful lot of niches to stay a big player, though."

Recently, one specialized product Apple has had some success selling is a "desktop publishing" setup -- an $8,000 to $10,000 Macintosh system equipped with a fancy laser printer that can do elaborate graphics and typesetting tasks. Mr. Sculley likens desktop publishing to xerography in its potential for changing the way offices work, because the systems take graphic production out of the print shop and put it into the hands of the people who compose a document or presentation.

One of the richest niches Apple has targeted is the engineering market, where once again, Apple will try to take advantage of the Macintosh's vaunted graphics capabilities. Apple believes that the Macintosh is an ideal tool for engineers, who besides using specialized workstations for design work, also have a lot of paper work to manage. "What's interesting is that 60% or 70% of an engineer's time is spent on things like reports, managing budgets and the like," says John E. Zeisler, Apple's manager of business marketing. "And a $50,000 workstation often is so specialized it can't be used for that kind of work."

Apple already has some engineering customers. "We're using Macs in an engineering environment, but not necessarily for engineering applications," says James Banks, a technical specialist at Aluminum Co. of America's technical center near Pittsburgh. "The extra dimension that sold us on them is the ability to copy images off the screen. You can create fabulous typeset documentation in no time at all."

But not everyone is convinced that the Macintosh is all that useful to engineers. Steven R. Lerman, director of Project Athena, an experimental program at Massachusetts Institute of Technology that is developing engineering workstations, says: "There's a variety of things that make it not the ideal machine. Right now the Mac doesn't have the basics" for engineering-open architecture or support of Unix-based software, high-speed networking, or a full-sized engineering video screen.

Moreover, some question whether Apple's distribution network, comprising mainly retail stores, can sell the more advanced and expensive engineering and desktop publishing systems directly to big corporate customers.

"A desktop publishing system with a laser printer and several Macs is getting to be a big-ticket sell, in the range of $10,000 or $15,000, and that is not an impulse kind of thing," says Gordon Casey, an analyst for Merrill Lynch & Co. "That's probably a tougher kind of sale for so many of the retailers, and completely beyond some of them. You have to question the suitability of Apple's marketing channels even more so for engineering customers."

David A. Norman, founder, president and chairman of Businessland Inc., a computer retailing chain that specializes in selling to business customers, thinks Apple is on the right track. "The Apple product in the corporate marketplace will become more valuable as it is able to run on networks within the IBM world," he says.

Barriers between different brands and types of computers will continue to fall after Apple's round of new products is announced during the year, says Jean-Louis Gassee, Apple's vice president, product development. "What the customer wants is basically something that doesn't tell them 'thou shalt do it my way,'" he asserts.

Nevertheless, he vows that Apple will continue to go its own way, intent upon offering an alternative, albeit a somewhat compatible one, to IBM. Apple's trump card is that it can probably afford to buy its way to growth if the new products themselves don't lift sales. Apple has more than $525 million in cash and no debt, which means it could acquire other smaller computer companies, or at least weather a prolonged sales slump.

In the long run, "I'd like to see Apple emerge as the Honda of the computer industry" -- in other words a company known for the "quality and aesthetics of its products," says Mr. Gassee.

Why Honda? "The role of General Motors is already taken," he says.

Copyright (c) 1986, Dow Jones & Co., Inc.