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Apple faces several crises. First, its operating software is very old. Most customers believe that Microsoft's Windows 95, available since last August, now matches the general capabilities of Apple's System 7.5. The last major overhaul of the Macintosh operating system--System 7.0, which laid the groundwork for the current version--was late when it was delivered more than five years ago and even then just barely met expectations. The next major overhaul of the Macintosh system, code-named Copland, is due later this year. But many industry experts aren't sure if Apple will be able to deliver the revision on time or even if it will make a big difference when it does.
The common wisdom is that a computing innovation like Macintosh cannot survive without some magical but undefined percentage of the overall market. And Apple has never had that magic number. It once sold about 12% of all the computers marketed around the world. Now it sells less than 9%, and its machines seem to be disappearing from offices (except in the publishing business). Without market share, the worry goes, software companies will not write programs that entice more users, and market share will shrink further. Such uncertainties overshadow Apple's success last year at introducing an entire new line of computers, the Power Macintosh, which is elegantly designed and performs well and dependably compared with similar machines from other companies.
Apple also has strategic marketing problems. Japan accounted for nearly a third of the company's 1995 revenues, but last year a price war erupted, sparked by rival Fujitsu. Apple had climbed to No. 2 in sales in Japan, a remarkable accomplishment for an American company, but then switched local managers and virtually self-destructed. In just a few months it cut prices so dramatically that it could not protect its profit margins in what was supposed to be its best quarter of the year. And even then, Apple wasn't able to sell all the computers it produced for Japan.
In fact, Apple seems incapable of forecasting sales for its products. Over the past two years the company has consistently underestimated demand for its hottest PowerBook and Quadra models. It has just as consistently overestimated demand for less popular machines. Between October and December, the value of Apple's inventories of unsold computers rose more than 50%, to nearly $1 billion; the company made more than $350 million worth of computers it could not sell. Already losing money, Apple is not in a good position to hold a sale. Meanwhile, the surplus drags further on the bottom line.
Most important, Apple needs to decide what kind of company it is, and be that company consistently. It has never done so.
When Apple was run by co-founder Steve Jobs from 1977 until '85, it was a self-consciously maverick firm that lived to be different (not entirely dissimilar from Sun Microsystems today). Its idiosyncrasies created a revolution. The benefit of its attitude started with the Apple II, which defined the fundamental elements of a personal computer: hard drive, monitor, key board. Then Apple invented Macintosh, and desktop publishing. The company was a premium maker of first-class personal computers. When Apple succeeded, it made lots of money but saw its market share shrink drastically. Eventually the shrinkage caught up with it, and profits dwindled too.