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Is This Apple's Grand Plan?

News: Analysis & Commentary: MANAGEMENT


Gates's help and a new board may not be enough

Apple Computer Inc. may have long ago lost its magic, but co-founder Steven P. Jobs has surely kept his touch. On Aug. 6, he bounded onto a stage before thousands of partisans at a Boston trade show and stunned the high-tech world with announcements that cast Apple in a brand-new light.

With no official role at Apple other than "adviser," Jobs replaced most of its board with heavy hitters including himself, Oracle Corp. CEO Lawrence J. Ellison, and former IBM CFO Jerome B. York. And in a departure from Apple's solitary fight against the personal-computer masses, he announced a broad pact with archrival Microsoft Corp., which will invest $150 million in Apple and has pledged to write Mac programs for five years.

BEST CASE. But is there a strategy that can restore Apple's luster? Investors clearly bought into the best-case scenario. Apple shares soared 33% on the day the deal was announced, to $26.30. But experts say the announcements are tiny first steps toward renewed health. Says analyst Timothy P. Bajarin of Creative Strategies Inc.: "They still really need a three-year strategy and a CEO to implement it."

That's not to say Jobs is sitting still. Fully in charge since former CEO Gilbert F. Amelio was pushed out on July 9, Jobs has already decided that Apple will exit much of the printer market, where it has lost market share, insiders say. And he told the packed house at the Macworld trade show that Apple would focus on strongholds in education and graphics. He also phoned Microsoft Chairman William H. Gates III to start partnership talks, which include a cross-licensing pact to share patents and Apple's agreement to use Microsoft's Internet Explorer Web browser.

Jobs also produced a top-flight board, including William V. Campbell, a former Apple exec who is now CEO of Intuit Inc., and York, who helped turn around IBM and Chrysler Corp. The new lineup could help recruit the kind of high-powered CEO Apple desperately needs. "This sends a powerful message about Apple," says headhunter David Beirne, who recently turned down an overture from Jobs to find Apple's next chief executive.

But the new chief will face a daunting task. Apple sources say the company is rapidly backing away from its licensing program, on which Mac cloners have built an $800 million or so industry in the past year. That could scare off customers who don't want to rely solely on Apple machines. And while the Microsoft partnership is far-ranging, the software giant didn't agree to adapt programs like its Office suite to run on Apple's upcoming Rhapsody operating software, the follow-on to Mac OS.

If Apple's future remains hazy, Microsoft is a clear winner. Gates may have been shaken by Mac fans' boos when he appeared during Jobs's keynote address via video link--an outburst that brought a stern lecture from Jobs. But the deal may buy Gates political cover from critics, who claim Microsoft seeks total software domination. It will also help Microsoft lock in millions of Mac users to its Internet software. Then again, Gates's golden touch isn't in question. The issue now is whether Jobs can play Midas to Apple.By Peter Burrows, with Steve Hamm in San Mateo, Calif., and with Paul Judge in Boston

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