Apple Computer, Inc. Business Information, Profile, and History

Company Perspectives

The company is committed to bringing the best personal computing and music experience to students, educators, creative professionals, businesses, government agencies, and consumers through its innovative hardware, software, peripherals, services, and Internet offerings. The company's business strategy leverages its unique ability, through the design and development of its own operating system, hardware, and many software applications and technologies, to bring to its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design.

History of Apple Computer, Inc.

Apple Computer, Inc. designs, manufactures, and markets personal computers, software, networking solutions, and peripherals, including a line of portable digital music players. Apple's product family includes the Macintosh line of desktop and notebook computers, the iPod digital music player, the Mac OS X operating system, the iTunes Music Store, the Xserve G5 server, and Xserve RAID storage products. The company's products are sold online, through third-party wholesalers, and through its own chain of stores. Apple owns approximately 125 retail stores in the United States, as well as stores in Canada, Japan, and the United Kingdom.

Origins

Apple was founded in April 1976 by Steve Wozniak, then 26 years old, and Steve Jobs, 21, both college dropouts. Their partnership began several years earlier when Wozniak, a talented, self-taught electronics engineer, began building boxes that allowed him to make long-distance phone calls for free. The pair sold several hundred such boxes.

In 1976 Wozniak was working on another box, the Apple I computer, without keyboard or power supply, for a computer hobbyist club. Jobs and Wozniak sold their most valuable possessions, a van and two calculators, raising $1,300 with which to start a company. A local retailer ordered 50 of the computers, which were built in Jobs's garage. They eventually sold 200 to computer hobbyists in the San Francisco Bay area for $666 each. Later that summer, Wozniak began work on the Apple II, designed to appeal to a greater market than computer hobbyists. Jobs hired local computer enthusiasts, many of them still in high school, to assemble circuit boards and design software. Early microcomputers had usually been housed in metal boxes. With the general consumer in mind, Jobs planned to house the Apple II in a more attractive modular beige plastic container.

Jobs wanted to create a large company and consulted with Mike Markkula, a retired electronics engineer who had managed marketing for Intel Corporation and Fairchild Semiconductor. Chairman Markkula bought one-third of the company for $250,000, helped Jobs with the business plan, and in 1977 hired Mike Scott as president. Wozniak worked for Apple full time in his engineering capacity.

Jobs recruited Regis McKenna, owner of one of the most successful advertising and public relations firms in Silicon Valley, to devise an advertising strategy for the company. McKenna designed the Apple logo and began advertising personal computers in consumer magazines. Apple's professional marketing team placed the Apple II in retail stores, and by June 1977, annual sales reached $1 million. It was the first microcomputer to use color graphics, with a television set as the screen. In addition, the Apple II expansion slot made it more versatile than competing computers.

The earliest Apple IIs read and stored information on cassette tapes, which were unreliable and slow. By 1978 Wozniak had invented the Apple Disk II, at the time the fastest and cheapest disk drive offered by any computer manufacturer. The Disk II made possible the development of software for the Apple II. The introduction of Apple II, with a user manual, at a consumer electronics show signaled that Apple was expanding beyond the hobbyist market to make its computers consumer items. By the end of 1978, Apple was one of the fastest-growing companies in the United States, with its products carried by over 100 dealers.

In 1979 Apple introduced the Apple II+ with far more memory than the Apple II and an easier startup system, and the Silentype, the company's first printer. VisiCalc, the first spreadsheet for microcomputers, was also released that year. Its popularity helped to sell many Apple IIs. By the end of the year sales were up 400 percent from 1978, at over 35,000 computers. Apple Fortran, introduced in March 1980, led to the further development of software, particularly technical and educational applications.

In December 1980, Apple went public. Its offering of 4.6 million shares at $22 each sold out within minutes. A second offering of 2.6 million shares quickly sold out in May 1981.

Meanwhile Apple was working on the Apple II's successor, which was intended to feature expanded memory and graphics capabilities and run the software already designed for the Apple II. The company, fearful that the Apple II would soon be outdated, put time pressures on the designers of the Apple III, despite the fact that sales of the Apple II more than doubled to 78,000 in 1980. The Apple III was well received when it was released in September 1980 at $3,495, and many predicted it would achieve its goal of breaking into the office market dominated by IBM. However, the Apple III was released without adequate testing, and many units proved to be defective. Production was halted and the problems were fixed, but the Apple III never sold as well as the Apple II. It was discontinued in April 1984.

The problems with the Apple III prompted Mike Scott to lay off employees in February 1981, a move with which Jobs disagreed. As a result, Mike Markkula became president and Jobs chairman. Scott was named vice-chairman shortly before leaving the firm.

Despite the problems with Apple III, the company forged ahead, tripling its 1981 research and development budget to $21 million, releasing 40 new software programs, opening European offices, and putting out its first hard disk. By January 1982, 650,000 Apple computers had been sold worldwide. In December 1982, Apple became the first personal computer company to reach $1 billion in annual sales.

The next year, Apple lost its position as chief supplier of personal computers in Europe to IBM, and tried to challenge IBM in the business market with the Lisa computer. Lisa introduced the mouse, a hand-controlled pointer, and displayed pictures on the computer screen that substituted for keyboard commands. These innovations came out of Jobs's determination to design an unintimidating computer that anyone could use.

Unfortunately, the Lisa did not sell as well as Apple had hoped. Apple was having difficulty designing the elaborate software to link together a number of Lisas and was finding it hard to break IBM's hold on the business market. Apple's earnings went down and its stock plummeted to $35, half of its sale price in 1982. Mike Markkula had viewed his presidency as a temporary position, and in April 1983, Jobs brought in John Sculley, formerly president of Pepsi-Cola, as the new president of Apple. Jobs felt the company needed Sculley's marketing expertise.

1984 Debut of the Macintosh

The production division for Lisa had been vying with Jobs's Macintosh division. The Macintosh personal computer offered Lisa's innovations at a fraction of the price. Jobs saw the Macintosh as the "people's computer," designed for people with little technical knowledge. With the failure of the Lisa, the Macintosh was seen as the future of the company. Launched with a television commercial in January 1984, the Macintosh was unveiled soon after, with a price tag of $2,495 and a new 3-inch disk drive that was faster than the 5 1/4-inch drives used in other machines, including the Apple II.

Apple sold 70,000 Macintosh computers in the first 100 days. In September 1984 a new Macintosh was released with more memory and two disk drives. Jobs was convinced that anyone who tried the Macintosh would buy it. A national advertisement offered people the chance to take a Macintosh home for 24 hours, and over 200,000 people did so. At the same time, Apple sold its two millionth Apple II. Over the next six months Apple released numerous products for the Macintosh, including a laser printer and a hard drive.

Despite these successes, Macintosh sales temporarily fell off after a promising start, and the company was troubled by internal problems. Infighting between divisions continued, and poor inventory tracking led to overproduction. Although originally a strong supporter of Sculley, Jobs eventually decided to oust the executive; Jobs, however, lost the ensuing showdown. Sculley reorganized Apple in June 1985 to end the infighting caused by the product-line divisions, and Jobs, along with several other Apple executives, left the company in September. They founded a new computer company, NeXT Incorporated, which would later emerge as a rival to Apple in the business computer market.

The Macintosh personal computer finally moved Apple into the business office market. Corporations saw its ease of use as a distinct advantage. It was far cheaper than the Lisa and had the necessary software to link office computers. In 1986 and 1987 Apple produced three new Macintosh personal computers with improved memory and power. By 1988, over one million Macintosh computers had been sold, with 70 percent of sales to corporations. Software was created that allowed the Macintosh to be connected to IBM-based systems. Apple grew rapidly; income for 1988 topped $400 million on sales of $4.07 billion, up from income of $217 million on sales of $1.9 billion in 1986. Apple had 5,500 employees in 1986 and over 14,600 by the early 1990s.

In 1988, Apple management had expected a worldwide shortage of memory chips to worsen. They bought millions when prices were high, only to have the shortage end and prices fall soon after. Apple ordered sharp price increases for the Macintosh line just before the Christmas buying season, and consumers bought the less expensive Apple line or other brands. In early 1989, Apple released significantly enhanced versions of the two upper-end Macintosh computers, the SE and the Macintosh II, primarily to compete for the office market. At the same time IBM marketed a new operating system that mimicked the Macintosh's ease of use. In May 1989 Apple announced plans for its new operating system, System 7, which would be available to users the next year and allow Macintoshes to run tasks on more than one program simultaneously.

Apple was reorganized in August 1988 into four operating divisions: Apple USA, Apple Europe, Apple Pacific, and Apple Products. Dissatisfied with the changes, many longtime Apple executives left. In July 1990, Robert Puette, former head of Hewlett-Packard's personal computer business, became head of the Apple USA division. Sculley saw the reorganization as an attempt to create fewer layers of management within Apple, thus encouraging innovation among staff. Analysts credit Sculley with expanding Apple from a consumer and education computer company to a business computer company, one of the biggest and fastest-growing corporations in the United States.

Competition in the industry of information technology involved Apple in a number of lawsuits. In December 1989 for instance, the Xerox Corporation, in a $150 million lawsuit, charged Apple with unlawfully using Xerox technology for the Macintosh software. Apple did not deny borrowing from Xerox technology but explained that the company had spent millions to refine that technology and had used other sources as well. In 1990 the court found in favor of Apple in the Xerox case. Earlier, in March 1988, Apple had brought suits against Microsoft and Hewlett-Packard, charging copyright infringement. Four years later, in the spring of 1992, Apple's case was dealt a severe blow in a surprise ruling: copyright protection cannot be based on "look and feel" (appearance) alone; rather, "specific" features of an original program must be detailed by developers for protection.

Mismanagement, Crippling an Industry Giant: 1990s

Apple entered the 1990s well aware that the conditions that made the company an industry giant in the previous decade had changed dramatically. Management recognized that for Apple to succeed in the future, corporate strategies would have to be reexamined. Apple had soared through the 1980s on the backs of its large, expensive computers, which earned the company a committed, yet relatively small following. Sculley and his team saw that competitors were relying increasingly on the user-friendly graphics that had become the Macintosh signature and recognized that Apple needed to introduce smaller, cheaper models, such as the Classic and LC, which were instant hits. At a time when the industry was seeing slow unit sales, the numbers at Apple were skyrocketing. In 1990, desktop Macs accounted for 11 percent of the PCs sold through U.S. computer dealers. In mid-1992, the figure was 19 percent.

But these modestly priced models had a considerably smaller profit margin than their larger cousins. So even if sales took off, as they did, profits were threatened. In a severe austerity move, Apple laid off nearly 10 percent of its workforce, consolidated facilities, moved production plants to areas where it was cheaper to operate, and drastically altered its corporate organizational chart. The bill for such forward-looking surgery was great, however, and in 1991 profits were off 35 percent. But analysts said that such pitfalls were expected, indeed necessary, if the company intended to position itself as a leaner, better-conditioned fighter in the years ahead.

Looking ahead is what analysts say saved Apple from foundering. In 1992, after the core of the suit that Apple had brought against Microsoft and Hewlett-Packard was dismissed, industry observers pointed out that although the loss was a disappointment for Apple, the company wisely had not banked on a victory. They credited Apple's ambitious plans for the future with quickly turning the lawsuit into yesterday's news.

In addition to remaining faithful to its central business of computer making (the notebook PowerBook series, released in 1991, garnered a 21 percent market share in less than six months), Apple intended to ride a digital wave into the next century. The company geared itself to participate in a revolution in the consumer electronics industry, in which products that were limited by a slow, restrictive analog system would be replaced by faster, digital gadgets on the cutting edge of telecommunications technology. Apple also experimented with the interweaving of sound and visuals in the operations of its computers.

For Apple, the most pressing issue of the 1990s was not related to technology, but concerned capable and consistent management. The company endured tortuous failures throughout much of the decade, as one chief executive officer after another faltered miserably. Scully was forced out of his leadership position by Apple's board of directors in 1993. His replacement, Michael Spindler, broke tradition by licensing Apple technology to outside firms, paving the way for ill-fated Apple clones that ultimately eroded Apple's profits. Spindler also oversaw the introduction of the Power Macintosh line in 1994, an episode in Apple's history that typified the perception that the company had the right products but not the right people to deliver the products to the market. Power Macintosh computers were highly sought after, but after overestimating demand for the earlier release of its PowerBook laptops, the company grossly underestimated demand for the Power Macintosh line. By 1995, Apple had $1 billion worth of unfilled orders, and investors took note of the embarrassing miscue. In a two-day period, Apple's stock value plunged 15 percent.

After Spindler's much publicized mistake of 1995, Apple's directors were ready to hand the leadership reins to someone new. Gil Amelio, credited with spearheading the recovery of National Semiconductor, was named chief executive officer in February 1996, beginning another notorious era of leadership for the beleaguered Cupertino company. Amelio cut Apple's payroll by a third and slashed operating costs, but drew a hail of criticism for his compensation package and his inability to relate to Apple's unique corporate culture. Apple's financial losses, meanwhile, mounted, reaching $816 million in 1996 and a staggering $1 billion in 1997. The company's stock, which had traded at more than $70 per share in 1991, fell to $14 per share. Its market share, 16 percent in the late 1980s, stood at less than 4 percent. Fortune magazine offered its analysis, referring to Apple in its March 3, 1997 issue as "Silicon Valley's paragon of dysfunctional management."

Amelio was ousted from the company in July 1997, but before his departure a significant deal was concluded that brought Apple's savior to Cupertino. In December 1996, Apple paid $377 million for NeXT, a small, $50-million-in-sales company founded and led by Steve Jobs. Concurrent with the acquisition, Amelio hired Jobs as his special advisor, marking the return of Apple's visionary 12 years after he had left. In September 1997, two months after Amelio's exit, Apple's board of directors named Jobs interim chief executive officer. Apple's recovery occurred during the ensuing months.

Jobs assumed his responsibilities with the same passion and understanding that had made Apple one of the greatest success stories in business history. He immediately discontinued the licensing agreement that spawned Apple clones. He eliminated 15 of the company's 19 products, withdrawing Apple's involvement in making printers, scanners, portable digital assistants, and other peripherals. From 1997 forward, Apple would focus exclusively on desktop and portable Macintoshes for professional and consumer customers. Jobs closed plants, laid off thousands of workers, and sold stock to rival Microsoft Corporation, receiving a cash infusion of $150 million in exchange. Apple's organizational hierarchy underwent sweeping reorganization as well, but the most visible indication of Jobs's return was unveiled in August 1998. Distressed by his company's lack of popular computers that retailed for less than $2,000, Jobs tapped Apple's resources and, ten months after the project began, unveiled the massively successful iMAC, a sleek and colorful computer that embodied Apple's skill in design and functionality.

Because of Jobs's restorative efforts, Apple exited the 1990s as a pared-down version of its former self, but, importantly, a profitable company once again. Annual sales, which totaled $11.5 billion in 1995, stood at $5.9 billion in 1998, from which the company recorded a profit of $309 million. In 1999, sales grew a modest 3.2 percent, but the newfound health of the company was evident in a 94 percent gain in net income, as Apple's profits swelled to $601 million. Further, Apple's stock mustered a remarkable rebound, climbing 140 percent to $99 per share in 1999. By the decade's end, "interim" was dropped from Jobs's corporate title, signaling Jobs's return on a permanent basis and fueling optimism that Apple could look forward to a decade of vibrant and consistent growth.

2001: iPod, Catalyst to Growth

Apple's turnaround was confirmed in the first years of the 21st century, as the company strode toward its 30th anniversary exuding an unprecedented degree of strength. At the heart of the company's surging growth was a digital music player branded as iPod. Introduced in late 2001, the device featured five gigabytes (GB) of storage, enabling the user to store approximately 1,000 songs on a player that was smaller than a deck of playing cards. Retailing for $399, the iPod represented another example of Apple's skill in designing an elegant and functional product, a product that became one of the most sought after consumer electronics items during the first half of the decade. Succeeding generations of iPods hit the market and scored resounding success, driving the company's financial growth. A 10 GB model was introduced in mid-2002, followed by the iPod Mini, iPod Shuffle, and iPod Nano, together representing a massive new source of revenue for the company. The fifth generation of the iPod debuted in 2005, a device available in a 30 GB or 60 GB model that was capable of storing and playing video files. By the time the video iPod arrived in stores, Apple derived roughly 35 percent of its revenue from iPods. Between 2001 and 2005, thanks primarily to the popularity of iPods, the company's sales nearly tripled, increasing from $5.3 billion to $13.9 billion. Apple controlled more than 75 percent of the $2.5 billion digital audio player market in the United States.

As the company enjoyed escalating sales midway through the decade, it also celebrated the success of a new dimension to its business. In 2001, the company opened its first retail outlet, a 6,000-square-foot store located in Tysons Corner, Virginia, that became the first unit of a chain of Apple-owned stores. By 2005, the company operated nearly 125 stores in the United States and a handful of stores in Canada, Japan, and the United Kingdom. With an expanding retail arm devoted to highlighting an impressively popular selection of products, Apple approached its 30th anniversary in a stronger position than ever before in its history. In the years ahead, the company's well-established ability to develop singular products for the digital marketplace promised to deliver impressive growth and excite the interests of consumers worldwide.

Principal Subsidiaries

Apple Computer, Inc. Limited (Ireland); Apple Computer Limited (Ireland); Apple Computer International (Ireland).

Principal Competitors

Compaq Computer Corporation; Dell Computer Corporation; International Business Machines Corporation; Microsoft Corporation; Hewlett-Packard Company.

Chronology

• Key Dates
• 1976 With $1,300, Steve Jobs and Steve Wozniak found Apple Computer, Inc.
• 1980 Apple converts to public ownership.
• 1982 Apple becomes the first personal computer company to reach $1 billion in annual sales.
• 1985 John Sculley assumes the helm after a management shakeup that causes the departure of Jobs and several other Apple executives.
• 1991 PowerBook line of notebook computers is released.
• 1994 Power Macintosh line is released.
• 1996 Acquisition of NeXT brings Steve Jobs back to Apple as a special advisor.
• 1997 Steve Jobs is named interim chief executive officer.
• 1998 The all-in-one iMac is released.
• 2000 Jobs, firmly in command as CEO, oversees a leaner, more tightly focused Apple.
• 2001 The iPod is released; Apple opens its first retail store in Virginia.
• 2003 Apple opens its first store in Japan.
• 2005 The release of a video iPod, the fifth generation of the device, pushes total iPod unit sales to 30 million.