Apple stretches core brand opportunities

Apple boss Gil Amelio is intent on a strategy of cost cutting and brand extension, but he may face fierce opposition.

Apple Computer’s 20-year rollercoaster ride has hit 1997 at a juddering pace.

In the past two weeks, the company has announced the purchase of a 300m operating system, NeXT, and with it the return of its prodigal “son” and co-founder Steve Jobs. It has also extended its brand further into clothes (MW January 10), and revealed that it expects to record a loss of about 100m in the next quarter.

If ever a company needed a period of stability and reflection it is Apple. Under the leadership of 2m-a-year chief executive officer Gilbert Amelio, who is respected both in Silicon Valley and Wall Street, the company has been trying to deal with losses of over 1bn in the past five years. Amelio has given himself three years to return Apple to profitability.

Hired 12 months ago, he has set about cutting costs with gusto, shedding 1,300 jobs and launching plans to cut 750m from Apple’s estimated 6bn annual expenditure. By the end of 1997, he has also pledged to halve the number of products and services the company produces from 80 to 40 in a bid to achieve a more focused offering.

Richard Buckley, senior research analyst at the International Data Group, says: “Amelio is going through the company department by department and cutting out all of the fat. That takes a long time.” However, if and when Amelio does halt the flow of money from the company it is not clear what size, and in which direction, Apple will then be moving.

Ironically, the key strategy Amelio has adopted to return Apple to profitability seems likely to lead to clashes with Jobs, the famously perfectionist co-founder who has always seen innovation as the way ahead. A month after Amelio joined the company Jobs said: “If the company is going to get out of this mess, it is through innovation, not through cost-cutting. When Apple started, it was about great products. It needs to go back to that. I still think there is hope – with the right leadership.”

Jobs is returning to the company part-time as an advisor but will report directly to Amelio. And, although he is less likely to fly off the handle than he once was, he is just as determined to impress his vision of computing on everyone he meets.

It leaves the possibility that if Jobs thinks the company, that he and Stephen Wozinak founded in a garage in 1976, is losing its cutting edge, he will cause trouble for other senior executives. It was just this sort of behaviour that led to him being ousted in 1985. But times are different. When Jobs was ousted, Apple’s volume share of the global PC market was 18 per cent; it currently stands at about five per cent. IDC analysts claim its share has fallen from 8.1 per cent in 1995, to 5.6 per cent in the third quarter of last year, underlining the fact that Jobs may not have room for petulant behaviour, even if he was still so inclined.

A more pressing worry for Amelio, and one that explains the return of Jobs, is Apple’s need for a new operating system – the program that controls a computer’s basic functions. In spending 300m on Jobs’ NeXT company, Apple bought the operating system with the same name – something it needs to update to take the company into the next century.

Apple had investigated another operating system called Be, but talks broke down and an Apple clone company, Power Computing, stepped in to license the system instead. IDG’s Buckley points out: “Apple was going after Be for some time only to have Power take it from under its nose. After that Apple had to look around for the next best thing.”

However, Apple strongly denies that NeXT is second best and says that the rest of the year will be spent on combining this system with in-house developments the company has made so far. The working title for the new system -which will not appear until 1998 – is Rhapsody.

A spokeswoman at Apple’s headquarters in Culpertino, California underlines the importance of the deal. “The main focus of the company this year is going to be on the operating system,” she says. “By comparison, all the other stuff is fluff. A large part of our marketing will also be spent promoting this.”

Amelio is increasingly shifting the focus of the company towards software. Apple is falling behind other top hardware manufacturers, according to some analysts, “and looking at software, particularly Internet or multimedia applications. At the end of Amelio’s three years, the company will look very different to today,” says one.

The company, which made sales of 7.4bn last year, will maintain its interests in its trio of core areas: the home market, education and publishing. According to Dataquest figures, it has about 13, 28, and 63 per cent volume respectively of the world market in these sectors. But in the highly lucrative corporate market it has lost out to Microsoft, IBM and a host of other hardware manufacturers.

Apple refuses to discuss details of its marketing plans for the coming year but brand extension is seen as an obvious area to exploit. Apart from a proposed café, and new merchandise, Apple continues to look for film tie-ins and product placement opportunities, like last year’s Mission Impossible and Independence Day deals. “We will continue to evaluate opportunities as they come up,” the company confirms.

The rollercoaster ride shows no sign of stopping.

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