Apple Computer. Stephen Arrants.

apple computer

For years, Apple Computer was viewed as the brightest kid on the block. Started in a garage, it has joined the Fortune 500 in just a few short years. Life seemed easy for Apple. The Apple II was hailed as a revolutionary product. The dealer base and user base were expanding, and large amounts of software were being written for the II series. Apple, it seemed, had in industry virtually to itself.

In the third quarter of 1983, faced with a highly volatile market and heavy competition--most notably from IBM --Apple posted the first quarterly profit

decline from a previous year.   Fourth quarter earnings dropped a whopping 73% to $5.1 million

(eight cents a share) from $18.7 million (32 cents a share). Apple stock has been hard hit also. Traded at $65.25 in June of '83, at press time it hovered around $22 a share. What went wrong?

Problems

Apple's first major setback occurred with the introduction of the Apple III. Designed as a business machine (as opposed to the II which was unabashedly a "personal' computer) for competition in part with the IBM PC, the III was beleaguered from birth. There were technical problems: Some units had IC chips that worked their way out of sockets when overheated. Using the III in Apple II emulation proved more of a problem than expected.

The SOS operating system was difficult to use because Apple was slow to release technical information.

Apple overcame these problems, but the III never really recovered. Although it is an excellent machine and the machine of choice among Apple employees, the III accounts for only a small amount of apple's total sales.

By 1982 the Apple II+ was growing old. It offered a 40-column display, 48K RAM, only uppercase characters, and an 8-bit CPU, and it was not MS-DOS compatible. The price performance ratio of the machine was falling rapidly behind other machines. The recently introduced IIe was designed to address some of these problems, and Rana Systems had introduced an MS-DOS coprocessor for the IIe. Instead of bucking the tide of IBM PC compatibility it seems that Apple is tacitly going with the flow while continuing to offer the classic Apple for aficionados.

Lisa, long heralded as the next step in microcomputing, was expensive ($9995) when first introduced in February 1983 and had relatively little software. The fact that Apple allowed more than six months to elapse between the announcement of the product and first shipments also hurt sales. It may have captured the world's imagination, but as John Sculley, said, "IBM captured corporate America's desktops.' Lisa offers "windowed' software, which allows users to call different programs from within one another.

Steve Jobs, Apple's chairman, stated that Lisa would be a phenomenal success its first year. It wasn't. Industry estimates of sales ranged from 10,000 to 50,000 during 1983. One research firm, InfoCorp, estimates that only about 15,000 units have been shipped.

Lisa was virtually a machine unto itself. Initially, it ran only under its own operating system. Apple has since made it MS-DOS compatible, although at a sacrifice of some of the integrated software features. The price has dropped to $8190 with software and to $6995 for a software-free Lisa. Why the re-packaging?

At first glance this might appear to be poor judgment. After all, what can you do without software? The move makes more sense if you realize that small business users--who often don't need and won't pay for all of the Lisa software-- make up the bulk of the Lisa market. Small business users prefer to adapt Lisa to their own applications. Apple's initial target market was Fortune 1000 companies. Recently, however, the company has seen the potential in the small business market.

Most other manufacturers--notably IBM--sell hardware, software, and peripherals separately, allowing dealers to assemble packages if they desire. Since a bundled Lisa looked more expensive than competing products in the store, customers balked. Now, it should be more competitive. Moreover, new software from independent sources will allow Lisa to do more at lower costs; there are now more than 165 companies developing Lisa software.

Lisa was also a stand-alone unit. It couldn't communicate with other machines, such as PCs Apple IIs, minis, and mainframes.

Still, another problem looms on the horizon. VisiCorp, Microsoft, Digital Research, and other companies have developed Lisa-like software, which allows other computers to perform like Lisas.

Lisa's Little Brother

Coming on the heels of the Lisa disappointement is the Macintosh, or Apple 32. If Apple is to remain a major force in microcomputing, many analysts believe that Macintosh must be a success. It must not only be a viable product, but Apple must be successful in selling it. As important as the Apple III and Lisa were to have been, Apple survived both of these setbacks. What, then, has Apple learned?

First, production of the Macintosh has already begun--well before the release date. Second, Apple has actively involved software developers--approximately 100 of them--for the past 18 months. A large and varied body of software should be available at the time the machine reaches dealer shelves.

Apple wouldn't comment on the Macintosh at press time, but some observers estimate that it hopes to sell 200,000 to 500,000 units in the first year.

Macintosh looks impressive. Everyone who has seen the computer gives it praise and high marks. But technology itself may not be enough to sell a machine--especially in today's market. Traditional marketing methods are becoming more important; elegant technology matters less than airing more commercials during prime time.

There are two important questions about Macintosh. First, will it undermine sales of Lisa, since it essentially does what Lisa does at a lower cost; and second, will it cannibalize IIe sales? Macintosh probably will not hurt Lisa sales in the long run. True, it does look like a low-end Lisa, but Lisa can do more and has more expansion capability. Nor is it likely to harm sales of the IIe since Macintosh is not designed as a home machine. It can't use proDOS or DOS 3.3 based software, does not support a color display, and most important, is not being marketed by the Personal Computer Division.

A New Strategy

In the face of all this, Apple has cut costs, centralized manufacturing and marketing, and is turning itself into an aggressive marketer. To do this, the company has hired John Sculley, former president of PepsiCo. Sculley is a marketer

with few peers.   His success at PepsiCo. was based on three things-- discipline, focus, and a

finely-tuned marketing strategy--all attributes that are badly needed at Apple, which until recently, was blinded by success. Amid all the accolades, the few mistakes and setbacks were little noticed. Failure to recognize one's errors in today's market is fatal, however.

Sculley stopped production of disk drives at Apple, relying instead on outside manufacturers. Apple will concentrate on what it does best, producing computers. He is positioning Apple directly against IBM, playing on Apple's reputation as a high-tech computer manufacturer and exploiting its cult status.

During 1984 Apple will spend over $50 Million on television advertising, as well as entry into non-traditional (non-computer) print media. By now you have probably seen at least one of the new television spots. They are well done, and reaction from both dealers and customers has been good. These "Apple People' spots show Sculley's touch. Young, smart professionals playing basketball or riding bicycles occupy most of the commercial time. An Apple product is mentioned only at the end; as he did with the advertising for Pepsi, Sculley is not promoting a product as much as a life-style.

Sculley is also focusing on Apple's internal problems. Management meetings are now held once a week, as opposed to the previous once a quarter. He is trying to mend fences with dealers. Sculley himself has appeared in videotapes for dealers explaining the directions and policies that Apple will follow in the future. Dealers no longer need to rely on gossip and rumor about Apple; they are now seen as an integral part of Apple's future sales strategy.

Apple also hired John Cavalier, formerly president of the Atari products management division to head up the Personal Computer (Apple IIe and III) division. This function was previously handled by Sculley, who began the redirection in August 1983 when business sales were flagging. His response was to bundle the Apple IIe with games and educational software and peripherals. This reflects Apple's plans to add new products to the II line and to re-position Apple in the home computer market.

Perhaps the most significant move was Steve Wozniak's return to Apple. Wozniak is now in charge of development of new products for the IIe product line, and has made a tremendous impact in the short time he has been back. One new product he has a hand in is a mouse controller for the IIe. Apple engineers produced a prototype mouse circuit board with 21 chips--about 70% of the total in the IIe. Steve streamlined the design to five chips in one afternoon. Steve believes that the II--regarded by many as the Model T of microcomputing --has been neglected over the past few years by Apple--an opinion apparently shared by Sculley.

Where To Now?

Apple faces many problems. 1984 will be the most critical year in the company's history. If Macintosh does not make the impact for which its builders hope, if Lisa sales do not pick up, and if IIe/III sales remain sluggish in the face of competition from IBM, then Apple could become just another microcomputer manufacturer. But with the new direction and new blood at Apple, the company stands an excellent chance of regaining its position as an industry leader. Apple is growing up, and the process won't be easy. With the dedication of John Sculley and with Steve Wozniak back in the picture, it looks as if there will be an Apple in our future.

Photo: The new blood and a founder--John Sculley and Steve Jobs of Apple Computer.

Photo: Net income of Apple Computer as shown on a Lisa screen.