Steve Jobs vs. Apple: What Caused the Final Split

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Computers

By Deborah C. Wise in San Francisco
Business Week

September 30, 1985

It could well be a soap opera called Management Intrigue at Apple Computer. Chairman and co-founder Steven P. Jobs topped off a highly publicized, week-long executive fight by submitting his resignation to Apple Director A. C. "Mike" Markkula on Sept 17. Jobs's resignation letter, published in the local press before it was officially received at Apple, tells his version of how the company he helped start in 1977 is mistreating him now. But stay tuned. Ensuing episodes may find the 30-year-old Jobs embroiled in a legal struggle with Apple over the reason for the brouhaha: his announcement that he is starting a new computer company and taking five key Apple employees with him.

After lying low all summer following a May management shakeup that left him without an operating role in the company, Jobs reappeared on Sept. 12 to tell the board about his new venture -- a startup to make sophisticated computers for the university market. Initially, this so interested Apple that the board considered taking a 10% stake in the new venture. But after Jobs called Apple President John Sculley at 7 a.m. the next day to identify his five new cohorts -- including key designers working on products for Apple's Macintosh line -- interest turned to anger.

'SURPRISED AND UPSET'

As company executives debated measures to deal with what many viewed as Jobs's treachery -- including forcing him off the board -- he preempted them with his public resignation. In his sign-off letter, he labeled leaked reports that Apple was considering removing him from office as "misleading" and "unfair." For the record, Apple's top executives spoke of their disappointment at the way Jobs went about his new venture. "We are all surprised and upset that Steve apparently planned this while he was still [chairman]," says Delbert W. Yocam, Apple's executive vice-president of product operations. Off the record, the anger ran deep. Says one source: "From the people he took, it would indicate [he is planning] something more than noncompetitive."

Apple's top executives are still discussing whether Jobs violated his fiduciary responsibility as chairman. One possible move would be a suit alleging that he engaged in unfair practices if he in fact planned the new venture and recruited while still at Apple.

Jobs assured directors that his planned product would not compete with existing Apple models, although it will fit into the same university market where the company has been pushing its $2,500 Macintosh. Jobs is believed to be designing a more sophisticated machine. Reached at his new home, a sprawling hilltop mansion overlooking Silicon Valley, Jobs remains mute on the subject. "I may not even know what I'm going to do yet," he says coyly.

But the young entrepreneur is clearly itching for something new. "The company's recent reorganization left me with no work to do," he complained in his resignation letter. "I am but 30 and want still to contribute and achieve." He may even be ready to put together a formal business plan. Among those from Apple joining him in his new venture is Susan Kelly Barnes, formerly comptroller of the Macintosh Div.

One likely new product for Jobs is a computer built along guidelines developed by 18 universities organized through Carnegie-Mellon University. The group, the Inter-University Consortium for Educational Computing, has asked Apple, IBM, AT&T, Digital Equipment, and other computer makers to build a standardized graphics computer for under $10,000. The machines now on the market that meet ICEC's specifications cost $20,000 to $40,000.

"Steve certainly has played a very major role already in the uses of personal work stations in higher education," says J. Patrick Crecine, senior vice-president of academic affairs at Carnegie-Mellon and head of ICEC. The objective of the ICEC specifications, Crecine says, is a generation of powerful microcomputers from different manufacturers that can all use the same software.

The team Jobs has assembled includes engineers qualified to design such a system. Richard Page, for example, has already designed prototypes of a new Macintosh-style computer that uses a 32-bit microprocessor like the one ICEC requires, sources say. Jobs and Dan'l Lewin, another Apple defector, are also intimately familiar with the college market. Lewin set up an Apple marketing program that has sold thousands of Macintosh computers to colleges.

EAGER DISCIPLES

Whether Jobs's project can get off the ground is still in doubt. But Jobs has the money to fight any legal challenge Apple might mount. Over the past few months he has stockpiled about $18.5 million from the sale of Apple stock. This reduced his stake from 11.3% to about 9% of the company.

The charismatic Jobs also won't have trouble finding more disciples to join his crusade. In fact, management turmoil at Apple since the reorganization last spring has soured many employees, and insiders say several of the original Macintosh Div. employees were sorry Jobs did not take them with him.

As for Apple, another crisis was clearly the last thing it needed. And the headlines about the departure drowned out the company's announcement of new products intended to boost Christmas sales. Notes Gordon Casey of Merrill Lynch & Co.: "They've washed a lot of dirty linen in public, and a mature company doesn't do that."

GRAPHIC: Picture, JOBS: "I AM BUT 30 AND WANT STILL TO CONTRIBUTE AND ACHIEVE", ANDREW POPPER