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Apple Must Do More Than Cut Costs to Survive

April 27, 1998|CHARLES PILLER | Times staff writer Charles Piller can be reached via e-mail at

Two straight quarters of profit for Apple. Stock price hovering near the company's 52-week high. Who would have predicted it six months ago?

Mac loyalists got even better news last week: Apple announced that strong sales of new G3 machines modestly increased the total number of computers sold compared with the same period last year. This may mean that the company is finally stemming the tide of defections to Windows, at least among the publishers and graphics pros that the G3s are designed for.

So there is hope. But the main reason for Apple's recent successes? A crash corporate diet.

Who needs fen-phen when you've got Steve Jobs at the helm? Many hundreds of jobs--from all over the company--have been cut in recent months, with more cuts on the way. Don't be confused about this: The biggest reason Apple is finally making money again is that the company is shrinking faster than its dwindling market share.

With a bit more economizing and incremental improvements in G3 sales, Apple might even squeeze out another profitable quarter or two. Unfortunately, cutting the payroll may prove to have been the easy part. Much harder is moving forward aggressively after the cuts.

"The question is, how long can you bleed before you've bled dry?" said Chris Shipley, editor of San Mateo, Calif.-based Demo Letter. Apple has lost "many really smart people who are developing future generations of products."

The company soon will have to tackle its hardest problems--shrinking market share and revenue--if it hopes to keep developers on board and renew a credible R&D effort. Those are the only things that will keep the Mac relevant in the long run.

Jobs predicts that revenue growth will return by the end of the year. He's not saying where that growth will come from, but suggests that a play in the "consumer" market--computers for home users who don't have a lot of money to spend--will be part of the strategy. It's hard to imagine what Apple expects to accomplish in that realm after ceding the competition a head start of at least 18 months.

The clearest sign of the challenges Apple faces can be found in the sad and scary story of Intuit's Quicken--the top software product for personal finance--a category that, next to games, defines the consumer market.

If any company can claim to dominate its niche the way Microsoft dominates operating systems and office productivity software, it's Intuit. Quicken owns 82% of the Windows market and 99.9% of the Mac market, according to market analyst PC Data in Reston, Va.

Intuit sold about 46,000 copies of Quicken for the Mac in the first quarter of this year. That's down a bit from the previous year and is only about one-tenth Quicken's Windows market, but it's still a reasonable sales total.

Intuit announced recently that it would stop developing new versions of Quicken for the Mac--at least until Apple's market share rises.

Steve Grey, director of Quicken marketing, insisted that Intuit was not abandoning the Mac. The company will move its Mac development resources into efforts serving both Mac and Windows users with Web-based financial tools, which Intuit views as the ultimate future of all its products.

Still, if anyone can read a balance sheet, Intuit executives can. "At the level that Quicken for Macintosh is selling now, we do not make money," Grey said.

Given that Intuit CEO Bill Campbell sits on Apple's board of directors, the move proved acutely embarrassing for Apple, which is struggling to keep key developers in the fold. After some hue and cry at Apple's annual shareholders meeting last week, Jobs and Campbell promised that new partnership agreements between the two companies would be announced this week.

Meanwhile, Intuit says that calls from disgruntled users of Quicken for the Mac have not exactly been lighting up the corporate switchboard. Another sobering sign of how much farther Apple has to travel on its road to a sustainable recovery.

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