Did Apple Shoot the Messenger?

Graziano's exit may mean continuing business as usual

By Peter Burrows and Kathy Rebello in Phoenix, with Robert D. Hof in San Francisco
Business Week

October 16, 1995

A head has rolled at Apple Computer Inc.--but was it the right one? Despite wild rumors the board would oust Chief Executive Michael H. Spindler at its Oct. 3 meeting, it instead reaffirmed support for Spindler and accepted the resignation of long-time Chief Financial Officer Joseph A. Graziano.

Apple cites simple "differences of opinion" between Graziano and Spindler. They may be simple, insiders say, but they are fundamental: whether to sell off all or part of Apple, as Graziano insisted, or continue with business as usual. External critics of Spindler's leadership say that Apple, beset by shrinking market share, operational gaffes, and the onslaught of Windows 95, can't afford the status quo anymore. "I would have liked to see far more," says CS First Boston analyst J. William Gurley. "It's time for someone to be accountable." Apple's stock fell 11/4, to 363/8, on the news, its lowest price in nearly a year.

"Disarray."

Spindler, who declined to comment, has said in recent interviews that the current strategy is fine. Others disagree. "The place is in total disarray," says one former executive, who warns that the company is rapidly separating into pro-Spindler and pro-Graziano camps.

Now that Graziano--who some say was the best-qualified person to replace Spindler--is gone, others say the shake-up isn't over. Company watchers say Daniel L. Eilers, the powerful head of marketing, is firmly in the Graziano camp. Meanwhile, the rank-and-file is anxious over edicts to cut expenses in the face of an profits shortfall. Wall Street figures fourth-quarter earnings will come in at little better than $70 million, vs. $114 million a year ago.

The problem: Having under-forecast demand, the company has a $1 billion-plus order backlog that leaves it unable to take advantage of booming PC demand. Worse, it has made little progress in its attempt to spawn a clone market by licensing out its Mac OS software. Only three small licensees are shipping product. And no major player is expected to get on board until late next year, when a new architecture for computers that can run both Mac and Windows software is released. Even if that works, it's hardly a windfall, in that Apple would be trading sales of $2,500 machines for $45 licensing fees, says Dataquest Inc. analyst Kimball Brown.

Graziano knew that didn't add up, Brown says. "He knows the numbers, and he knows they're not going the right way." The only alternative: to merge with a company with the marketing and financial clout to help Apple survive the switch to a software-based company. The most likely candidate, many think, is IBM Corp., which could prosper not only on licensing fees but on the sale of the chips and other components that Macintosh clone makers would need.

No Fit?

Spindler had his chance last fall. But a source involved in the talks says he and Chairman A.C. "Mike" Markkula Jr. nixed a $50-per-share bid from IBM. And Spindler has done little to encourage other overtures. Oracle Corp. CEO Lawrence J. Ellison says that "if Apple should want to merge, we would be honored." His plan, if Spindler agreed, would be to expand Apple's software licensing business and phase out or sell off the manufacturing piece, possibly to Japan's Canon Inc. Ellison hasn't approached Spindler, and says he isn't considering a hostile move.

Why won't Spindler deal? He has said that barring an "indecent proposal" from a suitor, "there's no strategic fit that makes sense." Says one associate: "The Macintosh is a religion to Mike, and he wants to see it sustained."

But nowadays Apple may need more vision and less religion. Problem is, Graziano may have taken much of that vision with him. The 52-year-old, CFO from 1981 to 1985, was lured back from Sun Microsystems Inc. in 1989 with a $1.5 million signing bonus. He was known as a team player who could still make tough calls. "He was the rudder and the voice of reason," says former Apple software chief Yogen K. Dalal, now a Mayfield Fund partner.

Spindler's future may not be quite so certain either. Markkula, who dominates Apple's board, says he supports Spindler. But "when your chairman comes out and says he has complete confidence in you, then it's time to worry," says co-founder Steven P. Jobs, who was ousted in 1985. The turmoil at Apple probably hasn't run its course.