'Best' May Not Be Enough for Apple


THE question is so much in the air that Apple Computer's No 2 executive, Jim Buckley, felt obliged to voice it:

''They've been asking if there will be an Apple Computer,'' Buckley said earlier this week. His answer, not surprisingly, was yes.

''Apple Computer continues to deliver something that is different and something that is better,'' Buckley reassured a gathering of thousands of Macintosh faithful at the annual MacWorld Expo here.

The problem for Apple, however, is that making the best personal computer, as the company arguably has done since its founding some 20 years ago, does not necessarily lead to business success. Apple is struggling to hold onto a shrinking slice of the PC market against the combined juggernaut of machines equipped with Microsoft software and Intel processor chips.

Recently Apple's woes have deepened. The computermaker announced last month that it expects to post a loss for the quarter ended Dec. 31. There are widespread reports that it plans to lay off up to 2,000 employees - 15 percent of its work force - shortly. And there is speculation that Apple could be the target of a takeover by a larger company, such as IBM, Motorola, or Hewlett-Packard.

Apple continues to boast a product that still shines for its innovation and elegant ease of use - though some analysts say Microsoft Corp. has caught up on the software side with Windows 95, the latest version of its operating-system that runs most personal computers.

Apple dominates certain narrower but important markets such as desktop publishing, education, and multimedia and video, and it is strong among home computer users. The Macintosh commands a loyal following - 90 percent of Apple users buy another Mac for a second computer, the company says.

''Mac people are early adopters. They appreciate and respect both quality and design features,'' says Scott Sperling, consumer-support director for Datadesk, maker of keyboards and other equipment. ''But it is also abundantly clear to us [that the Macintosh] represents only a fraction of the possible market for us.''

Windows-based PCs hold a commanding share of the market, partly due to their dominance of the office marketplace. As a result, software developers increasingly are compelled to put out products that run on Windows first, and maybe later on Apple.

Ted Helvey, president of Big Software Inc., originally developed his award-winning small-business management software for the Macintosh because the older version of Windows simply couldn't do what was needed. But now Big is coming out with a version that runs atop Windows 95. Nowadays, he says, the realities of the market make it almost impossible to find a developer who is creating Apple-only technology.

''It gets down to cold, hard facts,'' Mr. Helvey says.

Apple's current problems go back to its original decision not to license its unique operating system to other manufacturers. Instead Apple made its own machines, arguing that the tight integration of hardware and software gave it a clear quality advantage. Apple computers sold at a premium that meant high profit margins on each machine but a growing loss of market share to the cheaper IBM-compatible PCs, equipped with Microsoft's DOS operating system.

Now, Apple is in the midst of a ''difficult and painful transition'' to a new strategy, says Stephen Kahng, president of Power Computing, makers of the first clones equipped with the latest Mac Operating System (MacOS). ''Apple decided to go after market share rather than profit.''

That shift has been reflected in the decision to offer a family-oriented line of Macs, along with the new Power Computing models, at prices that are competitive with equivalent PCs. The strategy has been successful in boosting Apple's market share and generating huge demand, far greater than the company anticipated.

Indeed, one of Apple's biggest problems in the past year has been a severe backlog of orders, the result of shortages of key chips and other parts from its suppliers. The newer, popular PowerPC-equipped computers have been especially hard to find. The failure to meet that demand, particularly during the important Christmas buying season, only drove down revenue, just as Apple's gross profit margins have dropped to around 18.5 percent of sales.

The company, in the view of many analysts, compounded this problem by dragging its feet on an announced, ambitious effort to finally license its operating system to major manufacturers. Apple backed off from one such deal with Gateway 2000, one of the largest PC makers, reportedly because it didn't want a large competitor in the United States.

If Apple had moved to license its technology five years ago, when its quality lead over Windows was overwhelming, ''it would have been a different story,'' says Big Software's Helvey. ''Now when Apple goes that direction, it feels like an act of desperation.''

Apple may be trying to wait, some analysts believe, until the parts shortages are solved. It is working with Motorola and IBM on a next-generation processor chip that might act as a common platform for several operating systems. In addition, the company is deep into development of Copland, a much-touted full-scale revision of the MacOS. But Copland is behind schedule and unlikely to be out until 1997.

''It's never too late, and Apple realizes that,'' says Power Computing's Kahng, a Korean-born businessman who made a fortune as an early maker of IBM clones.

Yet there is a growing concern that Apple could become relegated to becoming a niche manufacturer, focusing on the markets such as publishing and education, aided somewhat by the growing interest in the Internet. Others have suggested that Apple get out of the hardware business entirely and focus on software.

But Apple's predicament is so tough that some analysts put it the other way around, saying Apple should focus on hardware.

''They need to focus, but the problem is which one can they win at,'' comments Helvey. ''If it's just software, Microsoft is a tough company to compete with. If they are a box company, Compaq is a tough company to compete with.''

Or Apple might look for a buyer with the resources to back a new assault into the personal-computer market. The names of potential buyers mentioned in various reports include software giant Oracle, Power-PC partners IBM or Motorola, Japanese consumer electronics firm Sony, and Silicon Valley's powerful Hewlett-Packard, which is moving vigorously into the consumer PCs.

There are still the true believers, Apple's passionate consumers. ''Look around,'' Datadesk's Sperling said, pointing to the fervent crowds packing San Francisco's Moscone convention center this past week, ''the Mac's not going away.''

You've read  of  free articles. Subscribe to continue.
QR Code to 'Best' May Not Be Enough for Apple
Read this article in
QR Code to Subscription page
Start your subscription today