Apple May Sell Key Units
To Further Reduce Costs
PC Maker's Newton Division May Go
As It Talks to Venture Capitalists
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Apple Computer Inc. is considering selling off
key business units as part of a stepped-up
effort to cut costs, according to people inside
the company.
The struggling personal-computer maker has
talked recently to venture capitalists about
unloading its slow-selling Newton hand-held
computer, and such a move appears likely. Apple
is also weighing the same step for other parts
of its operations, including some of its
high-priced software development efforts, those
people say.
Apple declined to comment.
The moves are signs of deepening problems at
Apple. They have been forced on the company by
slower-than-expected sales of its flagship
Macintosh computers. Apple is expecting revenue
to fall 20% to $8 billion in its current fiscal
year ending Sept. 27 from the previous year,
forcing a comparable reduction in expenses.
Long-Term Prospects
Those expenses may need to be cut even more,
though. The recent spate of bad news at Apple,
including last month's surprise quarterly loss
of $120 million, raised fresh questions about
the company's long-term prospects, which in
turn are further hurting current sales. Apple's
share of the PC market, which shrank to an
estimated 4.5% late last year, apparently is
still slipping. "It's been tough," one Apple
manager said.
Apple already has promised a new round of
layoffs to pare its 13,000-person payroll. The
company is expected to announce, either Monday
or Tuesday, a corporate reorganization -- the
first step in implementing such a work-force
reduction. While the layoffs themselves aren't
expected to begin until March, the reduction is
expected to be a significant one and could
reach 20%. The move would come on top of
reductions of 1,500 workers through layoffs or
voluntary departures at Apple last year, part
of Chairman and Chief Executive Gilbert F.
Amelio's initial phase of turnaround measures.
In Nasdaq Stock Market trading on Friday, Apple
closed at $16.625, down 12.5 cents. When Mr.
Amelio took the helm, Apple shares were trading
at about $29 a share.
Key Weapon
But in addition to cutting staff, corporate
sell-offs have emerged as a key weapon for
Apple in its cost-cutting drive. Consultants
from the firm of McKinsey & Co. are helping
senior Apple management sort through their list
of possible targets. Because of the sheer size
of the revenue shortfall, the company "needs to
be bold this time," said one member of the team
studying possible reductions.
A likely target is the company's Newton
"personal digital assistant," which was
introduced in 1992 as Apple's entry into what
was then described as a new multibillion dollar
marketplace for consumer gadgets. But the
Newton never lived up to its advance billing,
even though Apple continued to improve the
device.
When Mr. Amelio took over as Apple's chief
executive and chairman in February 1996, he and
others at the company mentioned an improved
Newton as potentially an important element of
the company's effort to crack new markets,
particularly the Internet. Now, Apple is
expected to shed the entire Newton development
effort, including the Apple employees working
on the project, although it likely would
maintain some interest in the venture, either
through partial ownership or through a
licensing arrangement.
Such a move would relieve Apple of the ongoing
research costs of the Newton, while still
allowing it to benefit from any future Newton
sales. Work on Newton technology could even
accelerate under a new ownership arrangement.
Though largely a failure as a general purpose
computer, the Newton has enjoyed a modest
success in specialized markets such as health
care and inventory management, making those
fields a source of potential buyers of the
technology.
Apple is also considering taking the same step
with some of its software development efforts,
though further details weren't immediately
available.
Reducing research expenses is a key goal for
Apple managers because those costs are far
higher at Apple than they are at other PC
makers. That is because Apple develops all of
its hardware and software in-house, rather than
use technology from Intel Corp. or Microsoft
Corp.
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Mark Guzdial : Georgia Tech : College of Computing : Atlanta, GA 30332-0280
(404) 894-5618 : Fax (404) 894-0673 : guzdial@cc.gatech.edu
http://www.cc.gatech.edu/gvu/people/Faculty/Mark.Guzdial.html