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April 23, 1997updated 05 Sep 2016 12:40pm

ANALYSTS DEBATE IF WORST IS OVER FOR TROUBLED APPLE

By CBR Staff Writer

While the vultures have not yet started circling over Cupertino, California, the home of Apple Computer Inc, the recruitment consultants have. Following the announcement that Apple was shedding 4,100 jobs, or a third of its workforce, as part of its latest efforts to revive its flagging fortunes, the headhunters swiftly moved in. One even hired a light plane to buzz Apple’s Cupertino campus trailing the recruiter’s contact details for anyone keen to avoid the kind of stampede that followed the earlier cut of 4,000 positions last Summer. With unemployment at only 3% in Silicon Valley, the prospects for the thousands sacked are good. If only the same could be said for Apple. Unless this latest radical restructuring by Gil Amelio (CI No 3,122) can turn the company around quickly, new personal computer buyers will be beyond its reach, and even the confidence among its faithful Apple user base will ebb away. Amelio has been described as a by the book manager and,some say, his plans for Apple reflect this. The product range will be pruned – with fewer Macintosh and PowerBook lines – and technologies such as video conferencing and IBM Corp AIX Unix server support ditched. Apple’s legendary profligate research and development spending will be scaled back to 5% of the company’s revenues. Having failed to push Apple into new markets, Amelio wants the company to fall back on its traditionally strong sectors, where loyalty to the Apple brand is fierce – specifically, education, publishing and new media, which includes Internet content building. What will stop much erosion of that user base is expectations for Rhapsody, the next- generation operating system technology that Apple is crafting following its $430m acquisition of NeXT Computer (CI No 3,069), the object-oriented software company of Apple founder Steve Jobs. Rhapsody is due in mid-1998, and will remove many of the weaknesses of Apple’s current System 7 operating system. Meanwhile, critics say a thorough restructuring of the company has been long overdue. Bureaucracy had run wild. For instance, the company had 20 different marketing departments. But the immediate effect of the changes will be yet more red ink on the balance sheet. The company’s results for its second quarter ending 28 March will show a $155m charge for restructuring on top of the $325m writedown it will take for the December purchase of NeXT. Apple says revenues for the quarter will weigh in at $1.6bn to $1.7bn, $250m below the most pessimistic analyst’s previous expectations. That will be followed by a further, smaller loss in the third quarter, predicts Amelio, and a return to profitability in the fourth. Financial analysts are divided over Apple’s future. Barry Bosak, an analyst with Smith Barney, has seen computer giants Dell Computer Corp and IBM turn themselves around and believes Apple can too if it focuses on its core market. But Eugene Glazer at Dean Witter Reynolds says that whatever Apple does its problems remain the same: It’s a niche company with a declining market share, he says.

From the April edition of our sister publication Computer Business Review.

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