January 29, 1996
Dear fellow employees,
As Apple faces some of the toughest times in our company's history, I know
that each of you is extremely eager to get more information about our plans
moving forward and what impact it will have on you. Given the hyped-up media
coverage about Apple, I know it is extremely difficult for you to sort out
truth from speculation and to cope with the cloud of uncertainty hanging
over the company.
I would ask you to take the time to read this memo carefully and
thoughtfully. It is long, but I felt it was important to share the direction
the management team and I are setting.
While I can't provide you with answers to all your questions right now, I
know that silence can be the worst enemy. So let me begin by acknowledging
that these are incredibly stressful times for all of us. I know, too, that
the lack of information to give you a better sense of our direction
frustrates you, as much as it frustrates me.
Following my comments at last Tuesday's shareholder's meeting, I want to
reiterate the sense of accountability that I feel personally for the
situation we find ourselves in. No one is more disappointed than I am at
what has happened to us in the face of high hopes and expectations that we
all have for the company.
While the naysayers have rushed to write our obituary, let me remind you of
the great things Apple has achieved, and we can continue to achieve, because
of our unassailable technology assets, our installed base of fanatically
loyal customers, the attraction of our brand, and most importantly -- the
incredible talent of our people.
Our products represent far more than sterile computing devices for crunching
numbers or typing letters. For both you, and our customers, the fortunes of
this company are emotional issues, entwined with a sense of who we are and
what we can become. In these critical days, it is imperative for us to draw
on that reservoir of idealism about the company. Our vision of
personally-empowering technology is relevant, durable, and exciting. And no
company has better talent to pursue and attain that vision than we do. More
than anything, I value the hard work, dedication, and the loyalty you
demonstrate in both good and bad times.
Now, we face difficult, but necessary, decisions and tradeoffs in order to
re-build Apple and fundamentally change our business proposition to return
the company to financial health. While our philosophy of empowering people
to do their best using the best technology has not changed, our business
model must.
As I stated in my link to you with the earnings announcement on January 17,
we are taking steps to license more broadly than we have in the past. We are
focusing on producing best-in-class products in the business, education and
home markets, and less on ''me-too'' products.
And this is just the beginning of what we have to do. The management team
has been working very hard to chart a direction that will turn around our
financial performance. Each member of my direct staff has been asked to put
together operational and executable actions against the strategy. They will
communicate those as actionable decisions are made. Recognize that some of
these are long-term directions. My team is working on timelines and
transition strategies.
I will also address our immediate short-term issues in a moment. Let me walk
you through what we already know.
STRATEGY
(1) Our markets and customers. Here we have been, and remain consistent, for
two years. We have picked our markets and identified our customers in home,
business, and education. They are in publishing/media, technical/scientific,
learning, the entertainment industry, in business sectors -- small or large
-- where creative knowledge workers exist, and in the home -- working and
learning, at all ages.
Customers who fit this profile resonate with our products and our company.
They appreciate our attention to detail, the uniqueness, and the quality of
solutions. With these customer, our focus should be to gain expertise and
understanding of their occupations and problems. In these segments, we start
from positions of strength. We will invest more in our strengths, and less
in mere ''opportunity.'' This is a change.
(2) Our products. Our product strategy for these customers is to deliver
exceptional technology, of high quality that are valued for their ability to
empower people -- individually or in groups -- to be creative, produce high
quality work, and be productive -- with beautiful products, that engage,
excite, and inspire.
Two key technology trends we have identified as drivers in the information
era are multimedia and the dramatic growth of the Internet. We are focusing
on using our innovation in these areas to drive higher visible -- software
and hardware -- differentiation, and less ''me-too'' into our product
offerings. This is a change, and will help us to sell more profitable
products.
(3) How we build products. When the PC industry started, companies like
Apple and IBM built factories and a high degree of integration in
operations. The reason was, in a young industry there was little industrial
infrastructure -- we had to do it all ourselves. More recent entrants to the
PC industry have not had to invest in physical factories. Some like Dell or
Gateway simply do assembly with little or no R&D (research and development),
while others buy complete ready-made systems, pop on their logo, and act
only as distributors. Therefore, these latter entrants to the marketplace
have a cost advantage -- they do not have to make the capital investments
that we have.
Through broad, aggressive and rapid licensing we want to allow more
companies who have different economic models to go into the business of
designing, building, and selling Mac-compatible products. This way, we get
more people filling in all the price-performance gaps in the Mac market
offering. And Apple can focus on it's strengths, and it's franchises. We are
making good progress on removing the technical issues that made it difficult
for others to build Mac-compatible systems, so we are aggressive in our
present discussions with potential new licensees.
What Apple needs to do is to leapfrog to the ''next'' business execution
model where a company of Apple's skills will manage the interface between
suppliers and customers. This means that over time, Apple will perform less
of the physical work on logic boards, and ASIC (application-specific
semiconductor) building, etc. This is not entirely new. For instance, in the
past few years we have been outsourcing an increasing percentage of our
boards. Today, up to about 50 percent of our boards are outsourced. We need
to accelerate this outsourcing, and look more to leverage other people's
fixed costs. Apple should concentrate on the areas where Apple adds unique
value, and our customers are willing to pay for that added value.
In addition, we are planning to rationalize our product lines to do fewer
unique logic boards and design centers, and build deeper, better resourced
engineering teams on those activities to increase our quality,
time-to-customer acceptance, and sustained engineering. With this broad
simplification we will continue to play in all markets. Customers should see
a less confusing product offering from Apple, higher quality, and a steady
stream of innovative products, built and assembled with partners in a much
more leveraged model.
(4) We absolutely still have a market share strategy. With emphasis on
profitable marketshare. Our market share strategy is key from a platform
standpoint. In other words, the attractiveness for the developers starts
with the number of Mac-compatible seats, and number of software purchases
per seat. With the aggressive entry of licensees into the Mac market, we
would expect the platform share to grow over time.
In the old PC-market industry definition however, any profitable market
share gains will happen slowly, not dramatically. So in addition to the Mac
OS (operating system) licensing strategy, we are testing one new weapon to
change the nature of the game. We will do two things:
(a) we will ''put'' into the market entirely new multimedia devices that
attract a different category than the traditional PC; and
(b) we will do so without necessarily selling ourselves an Apple-labeled
device, because our traditional PC business model is too costly to
profitably sell these sub-$1000 products.
The first test is a device called Pippin. The first company that will market
and sell a Pippin is Bandai, the world's second largest toy company --
creators of PowerRangers -- who are transforming themselves into a
multi-media company.
Pippin connects to a television set, runs rich multimedia software --
edutainment -- and with Netscape software, allows access to the Internet.
Since Pippin software runs on any Mac-compatible -- i.e. upward compatible,
each Pippin adds to the Mac OS market share. Remember, the real goal is to
profitably increase our market share, by taking advantage of multimedia and
Internet trends. Apple does not invest in manufacturing, distribution, or
titles. Remember I said before: ''Use other people's fixed costs.'' We do
design and get paid for that, and we get royalties. We get paid when any
company ships hardware. And with key content when a software title ships.
The Apple brand lives even if we choose not to sell such a device ourselves.
Each device carries the Apple name. We put no marketing expense against it.
Devices like Pippin have a chance to grow the Mac OS market share quickly
because of price-performance, and a different audience than the traditional
PC. Some other keys -- it is a pure licensing and intellectual property
model; and second, we repurpose existing Apple technology investments. This
is a good model.
(5) How we distribute. Each of our markets, and different regions have very
different distribution dynamics and are at different stages of evolution. As
a general strategy, we want to evolve with our channels towards more
efficient and effective distribution models that match our customers needs.
We will increase our focus on Value Added Resellers -- VAR's -- and System
Integrators -- SI's. This is a change. They are effective, they stay more
with our brand, they are key in delivering complete solutions to our target
customers, and they help us deliver mid-range and high-end systems that help
our bottom line.
Any evolution in manufacturing and distribution as I have described,
requires significant deliberation, and thought, as well as very close
consultation with our current partners. So expect these changes to happen
over time.
SHORT-TERM FOCUS
(a) First, public relations/communications and air cover. I recognize that
it is incredibly difficult to sell right now because the media frenzy and
speculation of our demise is causing our customers to hesitate and even hold
up product orders. Direct communications to our customers and the general
marketplace will be stepped up. Already, letters and electronic mail are
being sent to customers by some market divisions. Direct corporate
communications is needed to complement those efforts. Starting this week you
will begin to see this in print ads around the world. Other components will
follow to sustain the campaign.
I urge you to not believe any media reports -- no matter who they quote,
even if they say ''sources close to the company'' or ''an executive who
refused to be named.'' These are no friends of Apple and their intent is
disruption. When there is anything new to report, we will communicate to you
directly -- that is our commitment to you.
(b) We must continue with the rapid implementation of the first
restructuring phase to bring our costs down, in line with the new market
realities. This starts with managing our spending. Unfortunately, this also
includes layoffs which will be extremely painful for all of us. However, as
we have always done at Apple, we will do this with dignity, integrity,
compassion and fairness.
(c) As you are no doubt aware, we have a significant inventory challenge.
The good news is that the quality is good, i.e. they are fresh products. We
really need you to work with your management and customers, to focus on
programs, strategies, and any other activity that will move our existing
inventories. This should be everyone's number one priority, as it directly
affects our cash position. I cannot over express the absolute urgency.
Reassure your customers of Apple's commitment to them and to our mission.
The most important thing you can do right now is support our sales efforts
in any way you can.
Last Thursday night, our chairman, Mike Markkula, Kevin Sullivan, David
Nagel, and I had the privilege of presenting the 1995 CEO Technical
Achievement Awards, for technical innovations that resulted in significant
economic benefit for Apple. It was a good reminder of the incredible talent,
resourcefulness, and creativity in the Apple community. It exists in all
areas of the company. It was also a wonderful reminder that there is so much
more to come from Apple.
For some of us, this journey we have chosen is more than just a place to
draw a paycheck. More than ever, we rely on the passionate support and
loyalty of our most important asset -- you. I know many of you are weary.
Let's be positive and supportive of each other. Our customers and partners
want us to comeback strong -- they tell us so.
Finally, let us not forget that Apple makes the best personal information
products in the world today. You know it. I know it. And we are going to
launch a re-energized effort to tell anyone who will listen.
This company will turn around, as it has done before.
Thank you for your support.
Sincerely,
Michael
Posted to HotLinks (Apple's internal message network), January 29, 1996
--There are no incurable ills | There are no believable Gods There are no unkillable thrills | There are no unreachable goals There are no unbeatable odds | There are no unsaveable souls . . Osbourne e-mail tbyars@earthink.net | http://home.earthlink.net/~tbyars ---------------------------------------------------------------------