Now No. 2, Apple Tries Harder

By Alexander L. Taylor III

A new boss cuts prices, trims management and plans more models

Over four days last week, 1,500 computer dealers in 25 U.S. cities listened to pep talks from John Sculley, president of Apple Computer. He showed them new television commercials, answered questions and announced that this week the Lisa computer, which sells for $9,995, will have a new stripped-down price of $6,995. The price cut for the Lisa, introduced last January with much fanfare, marks another skirmish in the war between Apple (estimated 1983 sales: $1 billion) and IBM (estimated 1983 sales: $40 billion) for the personal-computer market.

In the past year, the position of the two combatants has dramatically reversed. Last December Apple held a 21% share of the market for computers costing $1,000 to $5,000, while IBM had just 12%, according to Dataquest, a California research firm. Today Apple remains at 21%, but IBM has 28%.

While IBM has a buttoned-down management style that has been fine-tuned for nearly 60 years, Apple, which is just 6 1/2 years old, is undergoing rapid change. The company is being transformed from an upstart entrepreneurial firm to one that marches to the beat of professional managers. The changes are coming at a time when the high-flying personal-computer industry is suffering its first major bankruptcies (see box).

Directing the developments at Apple is Sculley, 44, who in April was lured away from a job as president of Pepsi-Cola with an offer of $2 million for his first year at work. Sculley has been arriving at Apple headquarters in Cupertino, Calif, as early as 7:30 some mornings and setting a pace that many of the young executives have had trouble maintaining. Though he occasionally discards his preppie suits for open-necked shirts and rumpled slacks, he has been trying to instill discipline and induce a streak of humility in an organization where confidence bordered on arrogance.

Part of Sculley's task has been a realignment of Apple's top management. Since he took over, three vice presidents have been asked to leave and one has been replaced by a senior marketing man from Eastman Kodak. Earlier this month, Sculley requested the resignations of 30 staffers. Says one Apple programmer: "They've been telling people they have two choices. They've got five days to resign, or they're going to be put in a job for which they're unqualified, unsuited and ill-equipped--and then fired."

Cutting prices and shrinking the staff are not Sculley's only tactics. He is also planning new products. On Jan. 18, Apple will introduce a computer code-named the Macintosh. Developed by a group headed by Company Co-Founder Steven Jobs, the Macintosh is based on the technology developed for the Lisa but will sell for only $2,500. Experts estimate that Apple will sell 350,000 Macintoshes next year, in contrast with 46,000 Lisas. Says Analyst Michelle Preston of Wall Street's L.F. Rothschild, Unterberg, Towbin: "Mac is the future of Apple."

The company is also working on a simple, low-cost version of its best-selling Apple IIe. The Apple IIe would compete directly with the cheaper model of the IBM PC, which may be introduced next month.

Insiders who have seen the new machine say the Macintosh is an innovative computer that should succeed. Nonetheless, it has several major flaws. The machine, for example, does not have enough storage capacity to perform complex tasks like the Lisa. In addition, it will not at first be able to run the same programs as either the Lisa or an IBM PC, which has become the industry standard. That will be a big drawback for corporate customers who want to move information between different machines.

While the Lisa has been called a technological marvel, only 6,000 have been sold, fewer than expected. The main reason is that Apple has been unable to break into the corporate market. At a price of nearly $10,000, the machine was clearly aimed at the professional user. But IBM, with its huge sales force, is particularly strong in that market, and Apple's 100 salespersons were no match. Even after this week's cut, the Lisa may still be too expensive for large corporate customers. Explains Kurt Schweer, a vice president of Crocker National Bank: "At $5,000 apiece, we'd get interested. We're still unconvinced that Lisa's features are worth the cost."

Sculley, though, is trying to make the Lisa more attractive to business buyers. Next year it will be able to run programs designed for the IBM PC. Such a move would have been anathema a year ago and is tacit admission that Apple is learning to live in an IBM-dominated world.

So far, Sculley is getting good reviews from the Apple dealers he has been trying to impress. They say he has boosted morale and given the company some badly needed direction. Said Mark Aschauer, president of Mountain View Mission Computer in California: "Before Sculley arrived, Apple never listened to its dealers. The managers used to have egos running in front of themselves."

Perhaps Sculley's most crucial long-term test will be his ability to work with Jobs, 28, the charismatic but sometimes mercurial chairman. Though the two have been conducting a public love feast, the going may get rough. Said one skeptic: "Everybody is a golden boy with Steve for six months." The chairman and the president have already differed over the management of some new projects.

Wall Street is nervously watching Apple going through these growing problems, and the company's stock, with a high of $63.25 per share in June, slumped last week to close at $29.38. Nonetheless, industry watchers believe the company will continue to succeed. The Apple IIe, which costs about $ 1,500 less than an IBM PC, is selling briskly. Hambrecht & Quist, the San Francisco venture capital and underwriting firm, estimates Apple's sales will increase 50% next year, to $ 1.5 billion, and profits will climb 45%, to $ 145 million. But those predictions are based on success for the Macintosh and better sales for the Lisa. Apple clearly has a difficult task ahead as it tries to continue its saga as the fastest-growing company in American history. --By Alexander L. Taylor III. Reported by Michael Moritz/San Francisco

With reporting by Michael Moritz This file is automatically generated by a robot program, so viewer discretion is required.