Apple Cuts Back But Keep Its Core Identity

Sydney Morning Herald

Monday April 8, 1996

STEPHEN WITHERS

A PREDICTED $US700 million ($A880 million) loss for the quarter just ended is hardly good news for Apple, even though the company made it clear that more red ink would follow its first-quarter loss of $US69 million. But I doubt many people expected the words: "will significantly exceed" foreshadowed a tenfold increase in the size of the quarterly loss.

For a company that recorded cash and short-term investments of almost $A1.25 billion in its last annual report, dropping $A87 million in a quarter is hardly a disaster. Any loss is a serious matter, but the December result was hyped out of all proportion in some areas. It gets harder to gloss over the situation when the loss approaches three-quarters of a billion.

Even Apple Fellow Guy Kawasaki responded to the company's announcement with the words "I never said evangelising Macintosh would be easy". Kawasaki also changed the quotation at the end of messages to the faithful on his EvangeList mailing list from "Non Iligitimi non carborundum" to "We shall overcome. First, we survive."

The official line is that more than half the loss will be related to inventory write-downs and about a quarter to restructuring charges, consistent with the prediction made alongside the first-quarter results that a pre-tax charge of $A156 million in respect of planned retrenchments would be incurred during the March quarter.

Announcing the expected loss, the chairman and CEO, Gil Amelio, said: "The inventory writedowns and restructuring charges are critical first steps in orchestrating the come-back of the company. I'm confident at this point that I know what the problems are and that they are fixable.

"The strategic and operating plans we are currently developing will enable us to build upon Apple's fundamental strengths and competitive position, reinforce our customer appeal, and realise the company's long-term earnings potential."

While there is no guarantee of a return to profitability in the current quarter, Apple Australia's MD, Steven Vamos, is confident that it is not far away. He said the March operating loss would not be much larger than December's and that taking the write-downs and restructuring charges had cleared the decks quickly, paving the way for an improving trend.

He described the charges as "a tough step, but something we had to do". The inventory devaluation means Apple will be able to sell computers "at market prices with acceptable margins", said Vamos, who added that the reaction of industry analysts and the financial markets indicates they, too, think the worst is over.

Vamos has drawn his staff's attention to IBM, Digital and Compaq, which have incurred losses in recent years - multi-billion losses in the case of the first two - and returned to profitability following a change of leadership - the subtext being that Apple hasn't hesitated to bite the bullet.

A positive financial trend will be one of the key factors in restoring customer confidence in all market sectors, but Apple is also developing marketing plans aimed at relieving customers of the chore of defending their choice of Macintosh over Wintel. Early "good news" announcements in Australia will include a local version of Apple Classrooms of Tomorrow (a project examining what happens when teachers and students are given routine access to technology) plus news of improved export performance.

Actually, Apple Australia hasn't been doing badly. The company was shipping approximately $1.5 million worth of product per day during February and, although Vamos wouldn't be drawn on the details, he did say March had been an even better month despite the continuing lack of demand from the education sector.

So what of the future? Some of the things Amelio is apparently addressing are "motherhood" issues for a company going through a tough patch, such as customer focus and improvements to management processes. Others are more central to the Apple identity: an anonymous Cupertino employee reported Amelio has stated his intention to maintain R&D efforts and therefore product innovation, and to continue to build a superior product for which people will be prepared to pay a small premium.

The last thing we need is for Apple to become just another computer company, but even with acontinued push into licensing and sublicensing, the trick will be to maintain differentiation without repeating the mistakes of the past.