Shaken to the Very Core

By Barbara Rudolph

He was the brash, brilliant and sometimes bumptious brat of Silicon Valley, a symbol of its high-tech genius and fabulous sudden wealth. Alternately infuriating and inspiring, Steve Jobs co-founded Apple Computer in a California garage nine years ago and helped build it into a billion-dollar business that gave rise to the personal-computer industry. Along the way, Jobs was widely hailed as the prototype of a new American hero--the irreverent and charismatic young entrepreneur.

Last week an embittered and virtually powerless Jobs resigned as Apple's chairman and from the board of directors, following an anguished break with President John Sculley. But Jobs, who remains the largest single Apple stockholder with more than $85 million worth of shares, will not go gentle into the night. He is launching a new computer company that could compete directly with Apple (1984 sales: $1.5 billion). Already Jobs has outraged Apple's board by persuading five of the company's managers, including top engineers and marketers, to join him in his venture.

Jobs' departure caps months of turmoil that has shaken Apple to its core. The maker of home and office computers lost $17 million in its most recent quarter, the first red ink in the company's history. The firm is still recovering from a sweeping corporate housecleaning this summer in which 1,200 of Apple's 5,850 employees were let go. The company's woes, moreover, have occurred against a backdrop of sluggish sales throughout Silicon Valley and the entire computer industry. The beleaguered firm thus cannot take lightly even the symbolic threat posed by Jobs' new company, which will produce computers for the education market, long an Apple specialty.

^ While relations between Jobs and Sculley have been strained at least since last spring, the final rift erupted in a matter of days. On Sept. 12, Jobs informed Apple's board that he was planning to start a new firm; he implied that he would not take any key Apple employees with him. But the brief era of good feeling that ensued lasted less than a day. Just before the start of a 7:30 meeting the following morning, Jobs handed Sculley a letter stating that several Apple employees were leaving to work for his new company. Apple executives could not contain their ire, shouting "liar" and "deceitful" during the meeting. The outcry convinced Jobs that he could no longer stay at the company.

In a characteristically petulant move, the chairman leaked his letter of resignation to the press hours before delivering it to Apple on Sept. 17. "The company's recent reorganization," Jobs wrote, "has left me with no work to do and no access even to regular management reports. I am but 30, and want still to contribute and achieve." Apparently intended to arouse sympathy, the tone of the letter and its public release struck some Apple executives as a clear attempt to embarrass them. Said Steve Wozniak, Apple's co-founder who left the company last February to establish his own electronics firm: "Steve can be an insulting and hurtful guy." One wag dubbed Jobs the John McEnroe of business.

What particularly riled Apple officers was Jobs' recruitment of respected Apple employees. Says Executive Vice President Delbert Yocam: "These were all key people." They include Rich Page, a senior Apple engineer, and Dan'l Lewin, manager of education marketing. The other defectors were the manager of the software division, a controller and an engineer.

Jobs' actions startled knowledgeable observers as well as company insiders. Says Don Sinsabaugh, managing director of Swergold, Chefitz & Sinsabaugh, a Manhattan-based brokerage firm: "It surprised me that Jobs acted so unprofessionally. It was tacky." Apple's exasperated officers are considering whether Jobs may have violated his fiduciary responsibilities as chairman.

The former wunderkind remained feisty and unrepentant. Railing against Apple's "hostile posture toward me and the new venture," Jobs in his resignation letter declared, "I am saddened and perplexed by management's conduct."

Last week's events marked the sad end of a chapter in Apple's history that began happily in the spring of 1983. Convinced that his company needed managerial help in doing battle with mighty IBM, Jobs spent several months trying to persuade Sculley, a marketing whiz who was then president of Pepsi- Cola, to become Apple's chief executive. In a ritual that resembled an old- fashioned courtship, the two men spent weekends together, roaming New York's Central Park and strolling through museums. The executives seemed so well matched that when talking to others they would often finish each other's sentences. Said Sculley of Jobs: "Steve is a great visionary." Echoed the not notably modest Jobs: "Sculley is someone I can learn from." In April 1983, Sculley joined Apple for a $1 million annual salary and a $1 million bonus.

The union seemed at first to make sense. But slowly and painfully, the ties between the executives began to unravel. By early this year, the men who ran Apple found themselves in profound disagreement over the direction of the firm. Said Sculley: "It became clear that we had to run the company with more discipline, and this meant Steve would have less freedom."

As Jobs and Sculley bickered, Apple's business deteriorated. The long-awaited Macintosh computer failed to make deep inroads into the office market after its introduction in January 1984. The advanced machine has so far come nowhere near equaling the success of the Apple II, the company's first major product. One reason: Jobs' insistence on building the Macintosh in a self-contained way, which has made it all but impossible to add new components to existing machines to boost their power. Jobs' single-minded attention to the Macintosh and his indifference to other Apple products exacerbated tensions between him and Sculley. Beset by such troubles, Apple watched its stock price steadily tumble from a high of more than $62 a share in 1983. The stock closed last week at 16 3/4.

Alarmed by the Jobs-Sculley conflict and Apple's sagging position, company directors pressured Sculley to exert his power as chief executive. Last May he did so. In a major corporate reorganiza tion, Sculley realigned the company along conventional manufacturing and marketing lines. Jobs, who had sought to persuade the board to fire Sculley, was kicked upstairs, losing all operating authority. Four months later he was gone.

In leaving Apple, Jobs becomes merely the latest in a long list of entrepreneurs who have been forced out of companies they founded. Michael Tushman, a professor at Columbia University's business school, estimates that only 10% of those who launch firms are able to survive the inevitable changes that come with rapid growth. Says Tushman: "The very characteristics that lead entrepreneurs to start companies--independence, innovation and a commitment to ideas--are the same ones that can cause their demise as managers. A mature firm cannot tolerate relentless turmoil or a tendency to dash off in all directions."

Some basic details about Jobs' new company came to light last week. Bearing the clearly symbolic name Next, it will be located in Sunnyvale, Calif., and will focus on the education market. To bankroll the venture, Jobs, who has sold 1.35 million Apple shares this year, could dispose of some or all of his remaining stock.

To staff Next, Jobs has apparently turned to at least one former partner. Wozniak said last week that Jobs had called him earlier and left a message that he wanted Woz, as the Apple co-founder is known, to join Jobs in his new venture. Wozniak, whose relations with Jobs have been strained for months, had yet to return the call.

Jobs is leaving Apple at a critical point in its history. The company is attempting to revive its older Apple II line and to bolster Macintosh sales at a time when industry growth has dramatically slowed. Last week struggling Control Data canceled a $300 million securities offering and announced that it expects to report a loss for the year. In another development, Ziff-Davis folded its three-month-old trade paper, Computer Industry Daily, because of anemic sales.

Apple executives are nonetheless confident that they can polish their corporate performance. Sales edged up in recent months, and the company plans a hefty advertising campaign during the remainder of the year. The Apple II series will receive special attention, along with a host of new products. Among them: a modem that is some 30% cheaper than other phone-line hookups now on the market, and a new printer.

Silicon Valley remains rife with speculation about how well Apple will function without Jobs. Sculley is confident: "Steve's great contribution was recognizing that computers were tools for individuals and not large blue boxes for institutions. That doesn't change, whether Steve is here or not." Some observers, noting that Apple stock jumped $1 a share after Jobs' resignation became known, believe his departure may be a blessing for the company. Says David Gold, a Palo Alto venture capitalist: "It's good news for Apple that | he's out of their hair. The loss of a few employees is probably a small price to pay to have Steve Jobs going off and doing something else." But Nolan Bushnell, who founded Atari and subsequently launched and left several other firms, including Pizza Time Theater, is not so sure. Says he: "Where is Apple's inspiration going to come from? Is Apple going to have all the romance of a new brand of Pepsi?"

Jobs, meanwhile, remains well aware of the difficulties confronting his new venture and of the crucial importance of timing. "Apple was unique," he once confided. "If we had tried it one year earlier or one year later, it wouldn't have happened." At the still tender age of 30, Jobs will now try to make it happen once again.

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With reporting by Robert Buderi and Karen Horton/San Francisco