Apple has finally admitted it is not the powerhouse in the personal computing industry that it used to be. After a disastrous 12 months in which its worldwide sales declined by over 11 per cent (see box), Apple admitted this month that it has lost competitive ground in its key markets and is no longer regarded as an industry pioneer. Regaining that lost ground, the company said in a briefing document with its latest financials, is a challenge that lies ahead.
It has certainly been a rough year for Apple, rocked by changes at the top and a period of cultural revolution as management hacked away at the company's workforce, product lines and channels. Gil Amelio took over in February from the ponderously dull Michael Spindler. Amelio's big appointments so far - ex-IBMer Ellen Hancock as chief technology officer and Marco Landi as chief operating officer - have brought in new blood at the top of the organisation that goes against the grain of its traditionally off-beat culture.
Hancock and Landi have been hard-nosed realists who have done the unthinkable.
In one case, working tirelessly to shunt Copland into a sidings and return the OS focus back to upgrading the Mac OS to keep customers satisfied.
In the other case, restructuring the company into nine operating divisions and pressuring all of them into cutting costs and delivering a profit to the bottom line.
Like all previous management at Apple they have sung from the traditional corporate hymn-sheet - lots of warm words about creativity and loyalty and building fabulous new technologies. But unlike previous management, they have been ruthlessly slashing away at the overbloated, overextended infrastructure of the company behind the scenes.
Amelio appears to have recognised a few stark realities. Apple had to do something fast to protect its existing customer base, while cutting costs to the bone and identifying the weak points in the overall operation.
Nor was it going to be painless for loyal Apple employees. Soon after the new brooms were installed they started sweeping clean: the company announced it aimed to shed a fifth of its workforce this year - nearly 2,800 jobs.
The big question is whether Amelio's new guard is doing this much needed re-engineering of Apple so that it can go on to bigger and better things.
Or whether they're getting it back into shape to get a decent price for it. Which begs the question: is Apple up for sale? A question which begs the answer: every company has its price.
It is a well-known fact in Apple circles that Sun chairman Scott McNealy offered to pay $23 a share for the company earlier this year when the share price was just over $30 on Wall Street. The offer was rejected out of hand.
Over the course of this year, the share price has taken a battering, and if McNealy is still interested, and if he gets his timing right, he could get Apple for a lot cheaper than he originally expected.
In September, the two companies announced an alliance (see box) that brings development in the two environments closer together. If the engagement works out, the knot could be tied.
The scenario is a rosy one for the network computer (NC) - though not so attractive for the PC market. A Sun/Apple merger would create a computing powerhouse that would brings together two companies with largely complementary product ranges and installed bases. The difference is that Sun has the technologies and the ambition to break out of its workstation world and popularise its network computing model in competition with the PC. Its bandwagon is seriously rolling; Apple's 20-year-old engine has run out of steam.
One of the things Sun lacks is the channels to get its products out to market, and that's precisely what Apple has been successful in doing - building up a relatively loyal reseller base to get its machines to market.
And not just the Mac, but also the smaller handheld Pippin and Newton brands. Sun could do with a channel that knows a bit about the pitfalls and perils of selling the smaller products.
It has another tremendous asset: its user base. Amelio says that out of every eight Mac users who buy a new machine, seven choose another Mac.
Apple UK general manager Jon Molyneux echoed his master's voice in his welcoming statement for last week's Apple Expo in London. He said Apple will flourish because of the enduring popularity of the Mac platform.
'The fanatic loyalty of Apple's 60 million users across the world has made this company great', he said, turning a blind eye to fact that sales had plummeted by 11 per cent and the Mac's loyal base had clearly started to desert it.
Amelio seems to have heard the cries of pain. Apple's devoted user base has been sorely tested in recent years, first by the non-delivery of the over-hyped Copland OS, and more recently in its failure to be seen as a market leader where there is most growth - the intranet, Java and Web design.
Apple doesn't set the agenda in those hot markets, and Mac users are feeling frustrated about being so out-of-fashion. A majority of Web design work is being done on the PC platform, and leading Mac developers such as Adobe and Macromedia are working equally hard on PC products as they are on the Mac.
No wonder then that Ellen Hancock has put such emphasis on focusing in-house development back on the six-monthly upgrades for the Mac OS.
Existing users can expect the next big upgrade of System 7 to include Cyberdog, a set of Internet tools that should give the Mac a much needed boost among Webmasters.
Apple's development work with Sun will also yield Java and intranet tools later next year, alongside more high-powered multimedia technologies (see box). In some respects this realignment of development work shows how much Apple is getting back in touch with its customers. On the other hand it reveals just how much Apple is tied down by its customer base, and its past.
As Hancock has pointed out many times, backward compatibility to previous generations of the Mac is a burden for Copland. The new OS is not dead, it is just being rethought in terms of leaping ahead with new technologies.
While users want backward compatibility to protect their application investment, developers have been pushing hard for greater functionality and sophistication. They have been aided by a small Silicon Valley startup called Be Inc, which has developed a pre-emptive multi-threaded environment called Be OS that runs in multiple processor environments.
'Developers are keen on the machine because it has all the power of a Silicon Graphics workstation at a fraction of the cost,' says Be developer support executive Georges Edouard Berenger, who was at Apple Expo demonstrating Be OS on a Power Computing clone.
Be OS poses a threat to Apple, particularly if it manages to draw away loyal Mac developers. Once the applications start emerging for Be OS, what's to stop all Mac clone manufacturers dumping the Mac OS in favour of the higher-powered Be OS?
Once Apple lets its user base move into the hand of the Mac cloners, what's stopping them moving that user base away from the Mac altogether?
As Be boss and former Apple evangelist Jean-Louis Gassee points out, the Be OS is a clean slate, while the Mac OS is weighed down by 12 years of development baggage.
Rather than looking forward to huge revenue streams from licensing deals set up by their predecessors, Amelio's management is indicating signs of coming back from some of the decisions taken previously. Apple's chief clone partners - Motorola and IBM are encouraging the Mac base to move on to the Power PC platform with the licensed Mac OS.
But Apple has started to wobble. Suddenly Apple is not so Power PC-centric.
There is now a lot of talk about Exponential, a chip startup in which Apple has invested, which is talking about 500MHz chips, delivered years ahead of similarly specified Power PCs.
There is also a lot of discontent among clone resellers that Apple is not going to move up into the higher margin hardware sales and leave the Mac market to the cloners. It might just stick around and compete.
All of this suggests that Apple may not be as sure about the intentions and agendas of its erstwhile partners up to now. The Sun linkup is its insurance against possible disasters. It is also more culturally compatible - Apple and Sun embody the spirit of Silicon Valley in the 1980s.
As one Apple executive points out: 'Our Java developers are right next door to the Sun developers. They share the same pubs and restaurants, and you can imagine what kinds of things they talk about.' A meeting of true hearts and true minds? Very very possibly.
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