Macintosh: What Apple Needs to Start the Juices Flowing Again

Information Processing

Computers

Business Week

March 19, 1984

Little more than a month has passed since the rash of cover stories in computer magazines on Apple Computer Inc.'s latest personal computer, the Macintosh. So far, the highly praised machine appears to be a runaway success. Stores cannot keep Macintosh in stock; the waiting lists of eager customers are growing at many retailers. "The first two months' shipments were taken in the first week," says Rick Inatome, president of Inacomp Computer Centers Inc., a leading chain of computer stores in Michigan. And more retailers want to carry the product. Apple is about to pick up two major computer retail chains as outlets for its products -- Businessland Inc. and Sears, Roebuck & Co.'s Business Systems Centers.

Apple is at a critical juncture: It must gear up production to meet this exploding demand. The Cupertino (Calif.) company must deliver the goods -- in high volume -- to convince the industry and the public that it has a product that can flourish alongside International Business Machines Corp.'s leader, the Personal Computer. "If deliveries of Macintosh don't start to increase soon," warns Inatome, "the product could lose its momentum." Apple's delay in making its Coleco Industries Inc.'s recent shipment problems with its Adam computer -- caused customers to lose interest in those products, industry watchers say.

FAULTY DISPLAY

With the $2,495 Macintosh, Apple seems ready to deliver. It has invested $20 million to build a highly automated factory in Fremont, Calif., for mass-producing the machine. The company says it will be able to ship at least 50,000 units by May -- its target for the first 100 days of Macintosh production. Once the production line is running smoothly, the factory has the capacity to produce some 2,000 machines a day. Most personal computer makers rarely ship more than 10,000 units a month.

Even with all its automation, the new Fremont factory is not without problems. The current shortfall in the supply of the machine is partly the result of closing down the plant in early February while a supplier corrected a faulty video display. "Because of the shutdown, we are about one-and-a-half weeks behind where we were to have been at this point, in terms of getting the product to dealers," admits John Sculley, Apple's president. As a result of those early production problems, InfoCorp, a California market researcher, has reduced its estimate of Macintosh production for 1984 to 300,000 from 350,000 units.

Macintosh will survive only if it becomes a high-volume product, not only to pay off its investment in the factory but also to make it worthwhile for software developers to dedicate their resources to writing programs for Macintosh. Only four software packages are currently available for Macintosh: Two were written by Apple, one for word processing and the other for drawing, and two by Microsoft Corp., a financial spreadsheet and a graphics package for plotting charts.

More than 80 companies are committed to write software for Macintosh and the Lisa family. But leading software developers are overwhelmed with "opportunities to develop software for the IBM PC and its imitators," says Portia Isaacson, president of Future Computing Inc. Analysts agree that Apple will feel a squeeze because Macintosh has a proprietary design, requiring custom software. Most software developers "will only actually start working on programs for Macintosh when they see some volume building up," says Alexander D. Stein, analyst at Dataquest Inc., "even if they have already announced that they plan to support the machine."

MAJOR PRICE CUT?

Maintaining Macintosh's momentum is also critical to sales of other Apple products. Its success is already rubbing off on the one-year-old Lisa -- which was revamped in January with the addition of three new models and renamed the Lisa II. "I've had people come in here asking for a Macintosh who find that what they really need is a Lisa, which is more powerful and expandable and a heck of a lot better buy dollar for dollar," points out Jim H. Couch, president of Computer Kingdom, a Riverside (Calif.) store. As a result, Apple will also have to scramble to meet unexpectedly heavy demand for Lisas. InfoCorp analyst Ralph A. Gilman recently raised his estimate for worldwide sales of Lisa in 1984 from 30,000 units before the Lisa II debut to 80,000.

Apple's focus on manufacturing is equally strong in the production of its best-selling model, Apple IIe, a descendant of the company's original computer. As many as 40,000 IIe computers are still being turned out each month. Apple also is gearing up for production by summer of a new portable version of the IIe, code-named Lolly, but officially called the IIc. Weighing less than 10 lb., the portable can use most of the 16,000 programs that run on the Apple IIe. An optional, built-in display will be available later this year.

If the IIc portable is priced around $1,000, as expected, it could force a major cut in the price of the Apple IIe, which lists for $1,395 but is already discounted to less than $1,000. As a result, the Apple IIe group is determined to keep output at high levels in order to gain economies of scale. "The overriding issue with the IIe is continual [manufacturing] cost reduction so it can make money," says Apple's Sculley.

While the bright outlook for Apple's major product lines should be making corporate executives happy, the management mood at the company is far from upbeat. In January, just as Apple was gearing up for its Macintosh marketing blitz, Sculley reorganized the company for the second time in less than nine months. He had created a structure in September in which each of Apple's four major products was handled by a separate unit. These product groups were served by centralized marketing, manufacturing, and financial operations.

RESHUFFLING

Sculley has merged the four computer groups into two divisions: the Apple 32 Div., which includes Macintosh and Lisa, and the Personal Computer Systems Div., which will handle the Apple IIe and the less successful Apple III. Each division will have its own product design, manufacturing, and finance operations. Says Scully: "We found in bringing Macintosh to market that having the manufacturing, design engineers, and the controller for the design team also responsible for the financial management of the factory worked very well for us."

Some Apple insiders are still disturbed that such major corporate reshufflings came so close together. "They suggest that Sculley does not know what he's doing, and they make the job of managing in this company extremely difficult," says one current Apple executive. Sculley concedes that "as we go through the process of sorting out alternatives, it can appear to some people in the organization that Apple has not got itself together." But, he hastens to explain, the first restructuring was done "before we had a product strategy in place." Now that there is a strategy, he says, "the company requires a different organizational structure for its implementation."

While insiders may be disturbed by so much internal change, many Apple watchers now believe the company is beginning to get into position to do battle with IBM. "Sculley has brought focus and professionalism to Apple," says Douglas A. Cayne, a computer industry analyst at Gartner Group Inc. As a result of renewed investor confidence in the new management and products, he says, "the company's stock has stayed exceptionally stable since the start of the year -- at a time when the market has lost over 15% of its value."

GRAPHIC: Picture, RETAILERS CAN'T KEEP THE UNIT IN STOCK AND HAVE WAITING LISTS OF CUSTOMERS, LAWRENCE BARNS