Whether Apple Grows Anew Depends on the Human Factor

Apple Computer was clearly a buy at about $19 a share before an alliance with Microsoft, announced on Wednesday, sent its stock soaring--it closed Friday at $26.81 a share. But is Apple, a company that arouses uncommon public emotions, really bound toward a better future, or is this just another turn in America’s longest running corporate soap opera?

In the answer to that question lie insights into the roots of success and failure, tales of human folly and earnest effort, clues to the future of computers and other technologies and lessons for investors, employees and folks in general.

Without question, Apple will survive, in some shape or form. Perhaps it will be acquired by a richer company, because it will need more capital than the $150 million it got last week as part of the deal in which Microsoft, the software leader, agreed to support Apple’s Macintosh line of computers.

Apple would have met a sad fate if it had not received that vote of confidence. With total value of its shares having fallen to less than $2.5 billion, Apple would have made a cheap acquisition for any company looking to pick up a worldwide customer base of 14 million Macintosh users.

Now, with a new lease on life, it can have a better future.

“It should not be forgotten that Apple did very well in the early 1990s, when it brought out innovative products,” recalls Roger McNamee, of Integral Capital Partners, a Menlo Park, Calif., investment management firm. “It has more intellectual property than most companies.”

That reference is to Apple’s long record of coming up with innovations, from the Macintosh in 1984 to e-mate laptops for schools in 1996. Many computer users say Apple’s products are superior to standard PCs that run on Microsoft software and Intel processors.

With its technological abilities, analysts say, Cupertino, Calif.-based Apple can maintain a good business serving niche markets in desktop publishing, graphic arts and education.

But it’s how management employs Apple’s intellectual heritage--not the technology alone--that will determine the company’s future.

And that brings up the human factor, which has been Apple’s problem all along. The company’s image of dedicated computer pioneers is belied by the reality of overpaid middle managers quarreling constantly, industry veterans say.

Apple has been hurt repeatedly by top managers unwilling to take short-term pain, in earnings and stock price, for long-term gain.

Apple teaches an important lesson for investors: Investing in a company is investing in people; no technology is automatic.

Apple developed the first successful personal computer, and it was a sensation in the late 1970s. In the 1980s, IBM brought out its PC with chips from Intel and operating software from Microsoft and licensed computer makers, such as Compaq, Dell, Gateway 2000 and others, to spread the technology throughout the world and create an enormous market.

Apple reacted like the keeper of a secret flame, refusing to license its Macintosh technology, even as sales of Microsoft-Intel-based computers mounted to more than 100 million, reducing Apple’s share of market to a small fraction. Apple belatedly licensed Macintosh operating systems to some computer makers in 1994.

For years, Apple prided itself as being “Not IBM” and paid no attention to price competition. Later it identified itself as “Not Microsoft,” whose technology it belittled.

But pride goeth. The story goes that Microsoft’s feisty founder Bill Gates, at a 1986 dinner with John Sculley, wrote out strategic suggestions on how Apple could defeat Microsoft and handed them to Apple’s then-chief executive. Sculley ignored the challenge; Microsoft ate Apple’s lunch.

The pattern continues. Apple founder Steve Jobs, shoved out in the 1980s but now returned as an Apple director, is holding back on sharing technology with licensee computer makers. That angers licensees Power Computing, based in Round Rock, Texas, and Umax Data Systems, a Taiwan-based company. And such attitudes are not promising for enlarging the Macintosh customer base.

As for a merger in its future, Apple has been shopped around to more than half a dozen companies here and abroad in recent years. In 1994, it came close to a merger with IBM, but the computer giant, under pressure of losses itself, balked at the suggestion by Apple’s then-President Michael Spindler that IBM use the Macintosh system for all its PCs.

That might have made a great combination, says a computer expert, given “IBM’s skill with hardware and Apple’s with software.”

But enough of what might have been. What can happen now?

Apple could move ahead to the next step in computing.

“The PC has become a mature product,” says technology analyst Paul Saffo of Institute for the Future, a Silicon Valley think tank. “The next stage will be in computers--some simple machines, others more complex--that serve the Internet and other networks,” such as internal networks with which corporations now link suppliers and customers.

Apple could well shine in that field, particularly as Lawrence Ellison, chairman of Oracle and an advocate of network computers, is now an Apple director.

Some analysts are bullish on Apple. John Rossi, computer analyst at Robertson Stephens, a San Francisco brokerage firm, notes that the company’s skills in graphic imaging mesh well with the needs of Japanese makers of digital camcorders, such as Sony, Canon and Fujitsu.

And analyst David Kunstler of J.P. Morgan Securities predicts that Apple’s stock will rise more than the market average in the next year.

What should you think? That as a result of last week’s rescue, Apple is again a company to watch.

So watch how Apple handles its licensee policy; if it persists in old errors, that’s not a good sign.

Watch if Apple brings out products for network computers. The differing views that Jobs, Ellison and Apple’s new silent partner Gates have on network computing could help or hobble the company’s approach to the new field.

So watch for the man or woman Jobs and the other directors choose to be Apple’s chief executive and pay attention to his or her policies.

In other words, watch the human factor, the people running and influencing Apple. In the past, their genius and their flaws have brought the company, and public sentiments, to extraordinary highs and lows. At the moment, the direction is up.