A Search for Direction at Apple

By John Markoff
The New York Times

San Francisco -- September 30, 1993 --Perhaps the clearest indicator of the change and uncertainty at Apple Computer Inc. lately is the way Bill Fernandez, the software engineer who became the company's first employee in 1976, spends his time these days. He reads the Help Wanted ads in the newspaper.

Mr. Fernandez is among the 2,500 people Apple has laid off since July, when the company reported a $188.3 million third-quarter loss and announced a reorganization intended to reverse its plummeting value in the stock market.

But now, at a time when Apple's new Newton Messagepad seems to be the most popular product to ridicule since Ford's Edsel, and the visionary chairman of the company, John Sculley, appears ready to pursue new visions elsewhere, putting Apple back on course may be difficult.

"In the early days when we started, the flavor was light and loose and there was magic in the air," said Mr. Fernandez, a former software engineer at Apple. "Now things have become more ponderous and bureaucratic."

The burden of righting Apple, which is based in Cupertino, Calif., is on Michael Spindler, the longtime executive of the company who became its chief executive this summer when Mr. Sculley relinquished the post.

A Critical Six Months

The divergence in the styles of the two executives -- Mr. Sculley, the industry luminary who sat with Hillary Rodham Clinton during the President's State of the Union address; Mr. Spindler, the pragmatic German engineer who shuns publicity -- is raising questions about the vitality of Apple as the computer maker heads into a six-month period that many in the industry say will determine whether it can recover.

Mr. Spindler declined to be interviewed for this article, as did most other high-level executives at Apple, citing the "blackout" period leading up to the announcement of the company's fourth-quarter financial results, which are expected soon.

Although Apple announced today that it had sold 50,000 Newtons since the August introduction of the hand-held digital note taker, which allows users to write with a stylus, some analysts said the figure was not significant because the company had never shared its sales forecasts for the Newton with the public. And the company and analysts are expecting a gloomy financial report for the fourth quarter, which ended on Sept. 24, and perhaps an even rockier first quarter of 1994.

"I think they're going to lose money this quarter," said Lucianne Painter, a computer industry analyst at Salomon Brothers in New York.

Despite the public relations fiasco of Newton, because of its less than perfect recognition of users' handwriting, the product line more immediately crucial to the fortunes of Apple is the new family of Macintosh computers, due in March, that will be based on the Power PC chip the company has designed with Motorola Inc. and the International Business Machines Corporation.

3 Price Reductions

Beset by intense price competition, Apple has initiated three sharp price cuts in its Macintosh line since June, lowering the average retail price by 30 to 35 percent. That has shored up demand for its computers, allowing the company to meet its sales forecast for the fourth quarter. But fears remain that the delicate transition Apple is entering could be crippling if it is not executed effectively.

"There is a minefield ahead for Apple," said Bruce Lupatkin, a financial analyst at Hambrecht & Quist, an investment firm in San Francisco.

Because it has been heavily promoting the new Power PC-based systems, Apple is running the risk that its most important customers will delay buying its current high-end line of Macintosh Quadra machines to wait for the Power PC models. The new machines, Apple has promised, will offer substantially better performance at a lower price than the computers based on the chips made by Intel.

However deftly Apple handles the transition, the market's response to the Power PC machines will determine whether Apple can recover its aura as the leading maker of innovative, elegant personal computers, or is remembered as the company with the technological edge that was eclipsed by computers using Intel chips and Microsoft software.

Aura has always been essential to the company, founded in the garage of Steve Jobs, the charismatic entrepreneur who preached that personal computers would revolutionize the world. It was aura that helped Mr. Sculley subsequently build Apple into an industry power.

End of an Era?

But Mr. Sculley is widely expected to leave Apple soon. And, whatever the outcome of Mr. Spindler's effort to return the company to profitable growth, the era of aura seems over.

Mr. Fernandez, the software engineer who was laid off, recently circulated an electronic message to the remaining Apple employees, lamenting the changes.

"I have attended many of the seminars given at the career resource center," he wrote, referring to the workshops Apple has held for laid-off employees, "and have met many 5- to 12-year Apple veterans who also were laid off. As one old-timer put it, Apple seems to be getting rid of its institutional memory."

The words of any worker who has been let go can be expected to be bitter, of course, but the perspective of Mr. Fernandez carries special significance at Apple. While still a junior school student and an avid electronics hobbyist, he introduced Mr. Jobs to Stephen Wozniak, with whom Mr. Jobs subsequently founded Apple. And it was Mr. Fernandez who was hired by the two entrepreneurs as their first employee, after they brought in A. C. Markkula as the first president of the company.

Enthusiasm Dampened

Those who remain at Apple acknowledged the current morale problem. "What we've been going through this summer has had an impact on the company," Randy Battat, the vice president for Macintosh desktops and Powerbooks, said today. "We've lost a lot of good people."

Further dampening the corporate esprit de corps was a lawsuit filed last week by a longtime Apple executive and director, Albert A. Eisenstat, charging that Mr. Spindler acted in concert with the outside directors to oust Mr. Sculley and then Mr. Eisenstat in a palace coup.

Apple has said publicly since June that it was Mr. Sculley's decision to resign as chief executive while continuing as chairman and pursuing the company's efforts to build global alliances from a new East Coast office in New York City. But the suit says Apple's outside directors quietly approached Mr. Eisenstat and asked him to interview Mr. Spindler to see if he was willing to become chief executive.

A Rattling Effect

At a special board meeting on June 17, Mr. Eisenstat's suit contends, the outside board members met, then asked Mr. Sculley to step down as chief executive but remain chairman.

Apple executives have declined to comment on the suit, in which Mr. Eisentat, 63, seeks financial damages for what he claims was age discrimination and wrongful termination.

But the dispute has rattled Silicon Valley, where Mr. Eisenstat was viewed as an elder statesman and a force of stability in a company long perceived as quirky.

"Al Eisenstat suing Apple Computer is a little like Don Corleone suing the Mafia," said Guy Kawasaki, a computer industry columnist for Macworld magazine and a former executive of Apple.

GRAPHIC: Photos: Bill Fernandez, walking with his son, Daniel, and daughter, Kelly, in Fremont, Calif., was laid off from Apple Computer Inc. after the company reported a $188.3 million third-quarter loss. Mr. Fernandez, a software engineer, was the first employee of the company, in 1976. (Terrence McCarthy for The New York Times) (pg. D1); Michael Spindler, left, with John Sculley recently, became Apple Computer's chief executive when Mr. Sculley relinquished the post. (Louis Psihoyos/Matrix) (pg. D4)

Graph: "Apple's Plummet" shows the market value of four leading makers of personal computers, based on each stock's weekly share price multiplied by shares outstanding from Jan.-Sept., 1993. (Source: Datastream)