Remarks By John Sculley, Chairman and CEO, Apple Computer Inc. at Consumer Electronics Show

LAS VEGAS, Jan. 9, 1992 -- PRNewswire -- The following are remarks made by Apple's Chairman and CEO, John Sculley, at the Consumer Electronics Show:

Thanks and Congratulations on your 25th anniversary. You have prospered during a period of great economic expansion in the U.S. Consumer electronics is a major, dynamic and trend setting industry for our nation, and I'm very honored to be asked to address you today.

To really understand what is happening in our nation we must now -- more than ever -- have the context of what is happening in the rest of the world.

Today the rest of the world is economically re-inventing itself. As we near the end of the 20th century, Europe is taking major steps to become a powerful, unified regional economy -- a regional economy that potentially is larger than the U.S. In fact, it's estimated that the population of a Unified Europe will be about 350 million people -- compared to the roughly 250 million people in America.

The former Soviet Block is embracing democracy and has toppled the command and control economy of the past 70 years and is struggling to create a mark driven economic system.

The large Asia-Pacific area is rapidly changing and aggressively investing to create probably several, major, high value-added regional economies for the early 21st century.

Here at home, we're experiencing a "recession" and this has led many organizations to re-think their core competencies.

The world is in the midst of a global economic restructuring, and unless we make significant changes today, the U.S. will continue to lose the competitive advantage we've held over the rest of the world since the end of WWII.

During the Industrial Age, competitive advantage was defined by who controlled the natural resources out of the ground -- oil, coal, wheat, iron -- and who could best leverage "economies-of-scale" to convert these natural resources into products for the world's largest unified marketplace -- our own United States. We thought we could afford both to build a service economy and remain world competitive at the same time.

In the 1980s, economic growth continued because of the appreciation of assets -- Real Estate, leveraged buyouts -- and the expansion of easy credit -- S & L deregulation, junk bonds and easily collateralized loans tied to inflated asset values.

We saw an expansion of the white collar workforce, and a huge expansion of white collar compensation without corresponding gains in white collar productivity. In the 1980s, 19 million new service sector jobs were created but there was no resulting productivity gain|

At the same time, in other parts of the world, new, powerful regional economies were emerging. They are more manufacturing- centered than service-centered and they have been showing substantial overall productivity gains.

Does this mean the U.S. should return to "The Good Old Days" of the manufacturing-based, Industrial Age? Definitely not|

Instead, one of the great themes of this decade is quickly becoming the "Reorganization of Work." That is -- finding new and better ways to do things, instead of mapping new technology on top of old behaviors. Only through fundamentally changing the way we work will we actually increase productivity.

Working at home is becoming more possible and extremely desirable, and this is creating greater dependence on information tools and services. We are seeing this today with a great interest in Macintosh personal computer systems for the home offices. Soon, nearly 50 million people will be working at home, and that number will rapidly grow in the years ahead.

Closely related to the notion of "The Reorganization of Work" is another important theme called the "Reorganization of Learning." The facts are clear that the U.S. is way behind other powerful regional economies in educating our workforce for the information economy.

When competitive advantage was defined around natural resources out of the ground we were as a nation alone at the top. Now, competitive advantage in a Global economy depends on the quality of the ideas that come out of our minds -- ideas and information -- and we are scrambling to catch up with our peers in the world economy|

At Apple, we see a tremendous need and interest for life long learning and training. Education has always been Apple's largest market place and we have learned a lot about the value of interactive learning. For example, most people remember about 10 percent of what they hear. That's on average what you can expect to remember from this speech| But we remember about 30 percent of what we read.

More importantly, we remember and understand about 85 percent of what we do. And understanding-not just remembering-is a key to success in the global economy. Critical judgment skills are imperative to making decisions on the spot and as close to the transaction as possible. Critical judgment skills requires the ability to deal with abstract ideas and make trade-off decisions.

What makes personal computers such incredible machines is the fact that they are interactive. You, the user, have to do something. TV on the other hand is passive. You watch it. Music is also passive, you listen to it. Personal computing, on the other hand, is interactive, you learn from the experience. You can simulate models of a problem and try out possible solutions. You do something and you get feedback.

The reason why I am spending so much time giving you a context for understanding our economy and personal computers is because our two industries -- consumer electronics and personal computers -- are converging on an inevitable and potentially wonderful collision course.

Computer technology won't solve all our economic problems, but it can play an important part in "Revitalizing America's role" in the context of a global, dynamic information economy.

More and more the biggest growth opportunities for consumer electronics will be in products that do something useful for normal people -- products that help them work more productively -- products that help them accomplish learning through understanding of concepts and information -- products that help them communicate more efficiently, find information they need to live and work with more effectively.

This will be a decade where people will fundamentally transform the way they live their lives -- the way they think, work, learn and communicate. And much of this transformation will be made possible through digital technologies.

The important point here is the great difference between analog technology and digital technologies.

At the most general level, analog technology is passive. While it brings the user a wide variety of material, it has its limitations. It does not allow users to interact with the information. Nor does it allow customization or editing. The end user is exactly that -- the END user, at the very end -- or on the receiving end of the information process.

Digital technology, in contrast, can be interactive. Users can customize the material, edit it, and exchange it with others. Most important, the user is in the driver's seat, controlling what, when and how they receive the information.

The proliferation of digital technologies has tremendous implications for users, businesses, schools and for information-based industries. It means whole new kinds of useful and entertaining products that can be offered to people. And for the consumer electronics industry, it means the creation of whole new product categories and tremendous new opportunities.

There are already several trends in motion today that will speed up a transformation to digital electronics.

First, is communications. We can expect a massive expansion in network bandwidth during the 1990s. By 1994 we will see the roll-out of Digital Television by both satellite and cable operators which means that some service vendors will be able to offer more than 100 channels. But consumers will need a digital to analog converter box atop their receiver.

While HDTV may be still be several years off, digital TV is very close at hand. Digital TV will open up an opportunity for new kinds of Consumer Interactive Multimedia products. In addition, in this decade we will continue to see the miniaturization of digital products.

One of the big opportunities for miniaturized digital technology will be handheld devices that will enable people to look up information, easily find what you are looking for, communicate with others who have similar devices, download messages and basically organize the routine parts of your life.

The advent of digital wireless communications for example will greatly expand the availability of frequency spectrum. So, look forward to a lot more wireless communications at very affordable prices by the middle of the 1990s. In a digital world all content is storable, retrievable and interactive.

Not just text and speech as we think of in today's computer systems but also video, stereo sound and animation. By the end of this century, almost any new content material that is created will be done in digital form. This means that libraries no longer will be bounded by walls. Any game, any music, any video will theoretically be accessible on demand. The ability to edit, add special effects and build customized video and photo albums will be easy to do. There will be a wide variety of consumer multimedia titles where you can look up anything: from airline or hotel reservations, view possible places to travel, or get advice on how to remodel your home, fix your automobile or play an interactive video game over a network with other players.

Not only are consumer electronics converging with personal computing. More interestingly: Entertainment, communications and publishing are also converging with computers and consumer electronics. In the not too distant future, you will be able to pre-define areas of special interest, and receive your own customized newspaper video or magazine made up only of those things that your intelligent digital system thinks you are most interested in.

When there are in fact hundreds of television channels tochoose from, browsing the channels as we do today will no longer be very practical. Intelligent consumer appliance will help us avoid potential information overload, and also help people be more productive with their work time and more flexible in choosing their workplace.

In the 1990s, the Reorganization of Work and major economic restructuring will only work if people are able to make fundamental behavior changes. Making these choices enjoyable as well as productive will be one of the great opportunities with digital consumer electronic appliances.

Five years ago, I wrote a book about a product vision that I thought could change the world. Earlier, I had learned that it takes about 15 years for technology to incubate -- from the time of the invention until it has a chance of becoming a commercial success. So I began visiting and observing many technologies that were incubating in research laboratories around the world in hopes of identifying what kinds of truly revolutionary products we might see out in the 21st century.

I called this product vision the "Knowledge Navigator." I remembered a conversation many years ago that Steve Jobs, Dr. Land -- the inventor of the Polaroid camera -- and I had about new products. Dr. Land said that, "We really don't invent new products, but the best ones are there already, only invisible, just waiting to be discovered".

If we had conducted market research 10 years ago and asked what would the ideal personal computer be like, most people probably would not have been able to describe a Macintosh. There was little in the past that would have given them any context to think about it. But when we showed people the first Macintosh they immediately understood it and wanted one.

Later, I asked George Lucas, creator of Star Wars, if it would be possible to simulate the experience of a product even before it technically existed by using special effects. This way people could see the product concept and judge it long before we could actually build it.

Here is what a Knowledge Navigator in the early 21st century might look like.

(At this point, Mr. Sculley showed "The Knowledge Navigator" video.)

Our lawyers have asked me to point out to you that this is not a product introduction| But the Knowledge Navigator as a vision gives a good idea what future technology will be capable of, and while 4 years ago when I first showed this concept video many technologists thought this was science fiction, today we have actually solved many of the most important technological challenges.

My dream is to bring the first generation Knowledge Navigators to the consumer market in the 1990s. First of all, don't think of the Knowledge Navigator as a personal computer. The Knowledge Navigator is a very sophisticated Personal Digital Assistant or PDA.

Ease-of-use is greatly advanced with the use of speech, simple gestures and what we call intelligent agents who run around inside the the system finding things, reminding you of something or answering questions. In this concept video we made the agent look like a real human being so the metaphor is a conversational one. But our first agents will probably be invisible intelligence implemented in software.

There are some other very important technological concepts shown in the Knowledge Navigator which will be extremely interesting for possible future consumer products. For example:

-- Multimedia -- Interactive picture phone, animated maps and the anthropomorphic intelligent agents, like the fellow in the red bow tie...

-- Networked information services -- Dial-up electronic service, dramatically improved bandwidth sufficient to move television quality images and information content packaged into transportable files.

-- Miniaturization -- Form factors become very small as flat panels replace CRTs and rotational storage is transformed into IC cards.

I talked earlier about the convergence of personal computing and consumer electronics. Personal computers are general purpose products which require some level of skill to operate and they can do intelligent things like build models, find and display interesting stuff and give the user feedback.

On the other hand, most consumer electronic products have a particular defined usefulness. They are not so generalized as personal computers and they are relatively inexpensive. Personal Digital Assistants or PDAs can be the meeting ground for the convergence of these two industries. The Knowledge Navigator is a very sophisticated PDA. But let's think of some simpler examples:

1. Executive Organizers that fit in the palm of your hand and keep track of telephone numbers, calendars, things to do lists.

2. Wireless communicators with other useful built-in functions. Remember, digital technology let's us do things we couldn't even dream of with analog technology.

3. Electronic Books: In fact, Apple's PowerBook 100 is the first generation of this new kind of product -- Voyager is publishing several best selling titles for Apple's PowerBook this winter.

4. MultiMedia Players: We are going to see an incredible expansion of CD-ROM multimedia titles for personal computers over the next year and this should stimulate the market for consumer interactive multimedia players.

Marvin Minsky, the MIT professor and father of Artificial Intelligence once said, "You don't really understand something unless you understand it more than one way." So let's look at what we can expect to see in the future in this country with digital networks.

President Bush signed into law in December of 1991 the High Performance Computing and Communications Act. Essentially what this will do is appropriate about $6 billion over the next 4 years to be spent by federal laboratories todevelop the key technologies for a nationwide high speed digital network.

The original intent was to connect research laboratories and technical universities so they can do experiments with massively parallel computers to study violent weather systems, sub-atomic simulations, genetic engineering and other grand science projects.

As Chairman of the CSPP-or the Computer Systems Policy Project-an organization composed of 12 CEOs of the U.S. computer industry, I believe that this effort can have even far more benefit for the nation if it is expanded to deliver Health services, long distance learning for education, work at home and intelligent manufacturing to name a few ideas.

Think of this high speed digital network as one of the most important underpinnings that will give our Nation's industries and workers competitive advantage in a global, dynamic, information intensive economy.

Think of this network as a way to use technology to help us close the education gap between our students and those of other leading industrialized countries like Germany and Japan.

Think back to the end of the World War II when America created new institutions that became the underpinning of our industrial economy, our interstate highway system. The Atomic energy Commission. NASA. Network television to name a few.

Think of a high speed nationwide digital network able to connect every school, every library, every business, every government agency, every home, every person where ever they are. And the issues at hand are probably more regulatory than technical to create this new infrastructure.

We can't overstate the coming importance of digital consumer information services in spite of past failures with ventures like Videotext in the early 1980s. Aging baby boomers have an incredible thirst for information. Look at CNN and they aren't afraid to use personal computers-or consumer electronics. Why is Apple interested in consumer electronics?

Frankly, we wouldn't be interested in today's industry. It's dominated by very competent companies who have major component cost advantages and great experience in bringing excellent products to market quickly.

In today's consumer electronics industry "hit products" are easily copied and profit margins can be very quickly narrowed. But digital is a different world. It is even more than the convergence of computers and consumer electronics. Television and telephone networks are also going digital. Content material from entertainment to publishing is going digital.

So, the implications are that we will see a very large, very high growth industry ahead. To be successful requires great competence in designing the software which makes consumer digital products extremely easy to use. Making digital products and services easy to use is what Apple is really good at.

So, don't just think of us as another hardware vendor, but also as a technology provider. It requires an ability to design complete systems where software and silicon are tightly integrated to complement each other in ways that will increase usefulness and lower product costs.

Apple has always stood out as the contrarian in the computer industry, believing that ease-of-use, usefulness and user appeal were more important than faster performance, complex capabilities and added features. For us it's been a matter of deep beliefs that have made us passionate about the user's experience. What allowed us to succeed as the only company who hasn't adopted Microsoft's and Intel's technologies is that our users love their Macintoshes to the point of fanaticism.

In our Fiscal 1991, a year in which unit growth for the personal computer industry hovered around 5 percent, Apple's worldwide unit growth exceeded 60 percent.

We have an approach to product development which is more like the movie industry than the computer industry. Since we arethe only computer company who designs all the elements -- silicon, software, networking, tools, peripherals and applications -- we can make tradeoffs and design choices unavailable to our competitors.

So we try to design "Hit Products." Last year we had the Macintosh Classic and this past Christmas our Macintosh LC and new PowerBooks have been extremely popular. We have also found our products to be far more price elastic than our competition. When we lower our prices our sales go way up.

New kinds of digital consumer products like PDAs, Personal Digital Assistants, will be developed and will be sold on the basis of ease-of-use, usefulness and will be so engaging that people will want to change the way they do things. We believe that as consumer electronics and personal computers converge, Apple is uniquely qualified to bring distinctive value to ease-of-use, usefulness and consumer appeal.

Apple also has a brand name that has great recognition for exciting innovation and quality for personal computer systems. I believe that the Apple name will be a powerful draw for consumer digital information products. So here are Apple's plans:

First, Apple plans to introduce a selection of consumer-specific versions of its low-end Macintosh products into consumer channels in the U.S. during the second half of calendar 1992. We also plan to introduce two differentiated lines of CD-ROM based desktop Multimedia Macintosh systems. One for consumer channels and the other for Apple's traditional personal computer channels.

Both product lines are intended to be based on Apple's new QuickTime multimedia technology working with the System 7.0 Macintosh operating system. QuickTime is time-based synchronizing software for managing the coordination between video, stills, animation, sound, text and graphics. QuickTime also includes internal software compression algorithms for video, still and animated images, along with giving Macintosh the ability to control devices like VCRs and laserdiscs.These multimedia systems are expected to be available for the 1992 Christmas selling season.

Second, Apple also plans to enter the digital consumer information products sector of the consumer electronics industry. We believe that pervasive networking based on digital technologies will be as important to creating a new industry of Personal Digital Assistants in the 1990s as the the integrated circuit was in launching the personal computer industry in the late 1970s.

The transition from analog to digital technologies opens the possibility for a wide range of potentially very innovative and useful devices we are calling generically Personal Digital Assistants. PDAs will include such devices as electronic books, electronic organizers, multimedia players, electronic note takers, display telephones and personal communicators.

Unlike PC's which are general purpose products requiring a certain level of user skill, PDAs will focus on specific functional capabilities and will be designed to be much easier-to-use than personal computers. Personal computers have emphasized features and performance while PDAs will emphasize usefulness, user appeal and will be much easier-to-use.

We believe that our special area of competence for making computing technology easy-to-use and appealing to users can be the basis for an important new business for Apple.

1. In order to be able to bring a wide range of products to market quickly, we are workiw products based on Apple-created software technologies in 1993-both under the Apple brand and also by several other companies under their own labels.

We believe this approach has the best chance of giving consumers a wider choice-thus stimulating category demand for new kinds of devices and allowing Apple to enter this competitive industry from a position of strength and shared investment.

2. Introducing high volume Macintosh products into consumer channels will be important in creating critical mass presence for Apple as a consumer channel vendor.

We intend to add more customer support capabilities since many consumers will not be as knowledgeable about computing technology as our traditional customers and consumer channels usually don't offer as many value-added services as traditional personal computer dealers.

We would like to have our personal computer business through consumer channels in place before launching Apple branded PDAs.

3. Apple has been actively working in the area of digital telecommunications, both wired and wireless, for several years.

We are interested in playing an important role in creating easy- to-use devices for digital based services. We expect that the advent of digital television and digital telephony will create a logical follow-on of opportunities to the first wave of standalone PDAs.

We believe that many vendors from several industries will be offering digital services over digital networks in the future and we hope to become a provider of technologies and products for some of these markets.

4. While initial roll-out plans will begin in the United States, we believe that these opportunities are truly global ones and we intend to expand accordingly at an appropriate time.

Apple has had an unique opportunity to pursue a very different product development strategy from the rest of the personal computing industry built around the premise of designing "hit products." We are confident in our ability to continue to create highly differentiated personal computer systems, and that these strategic moves into consumer channels will also be in the long term interest of our traditional resellers.

There is a long history of entry-level Macintosh owners trading up over time to more sophisticated Macintosh systems, so reaching out to more new users should have a strong positive effect.

Times of dramatic change and economic challenges are also the times for great innovation that can translate into real productivity gains. The role of consumer digital electronics will be important to both this nation and this industry.

The Digitals are coming| So is pervasive networking that will dramatically increase the range of home-delivered services. And Apple intends to be there as a leader in this segment of the consumer electronics industry through constant innovation and the best possible ease-of-use technology. We are choosing a path which builds on our strengths and at the same time shares some of our best technologies with some of the world's best consumer electronic companies.

We hope to become one of the great innovators and agents of growth in digital consumer information products in the 1990s.

Thank you and we look forward to being a part of your industry.

/CONTACT; Sue Bowdoin of Apple, 408-974-3429/ 14:29 EST