Dear Developers –
Here is the text of Gil Amelio’s Apple Shareholders’ Meeting address. If
you are interested in the direction and goals that Apple is setting, I
recommend that you read it.
Here are a couple of things that we’ll call out to you:
1. There are new and impressive people in charge of marketing.
2. Rumor has it that the new PowerBook — code named Hooper — is really
going to kick some butt.
3. Last quarter, the Mac OS (as opposed to Apple’s hardware business alone)
actually GREW 9% — not shrank as the generic press would lead you to
believe. Motorola, who sold 40,000 Mac OS units at Comdex, believes that
these sales are new units, not something they are taking from Apple.
I apologize for the length of this message — but I thought it worthy.
Neil Ticktin
MacTech Magazine
publisher@www.mactech.com
=========
Good morning. Members of the Board, Apple Executives, Fellow Shareholders,
Fellow Employees. Welcome and thank you for coming.
Our annual Shareholders’ Meeting this year falls on my first anniversary as
your CEO. So it’s an especially fitting time to reflect on the past year as
well as what lies ahead.
As most of you know, I’ve dealt with troubled companies before. I am well
acquainted with what it takes to bring them back to health. When I joined
Apple, I said the journey back would take about three years. Today, we’re
about a third of the way there. We’re working hard to move faster, but
unfortunately there are no shortcuts, no magic bullets.
That aside for the moment, let me confess that I have never felt
comfortable meeting with stockholders at a time when the stock is setting
new lows. I am no happier about that than you. And you have my word, for
both institutional and personal reasons, that I am highly motivated to take
all necessary corrective steps to reverse our downward plunge.
I know and you know that Apple is worth a lot more than its present market
price. But while public perception plays some role in market evaluation,
the real driver is earnings. So let me assure you that my very highest
priority as I stand here is to get this company in the black as quickly as
possible. And to create a sustainable and growing earnings capability that
will be fully recognized in the securities marketplace.
I want to assure you that I’m using all of my energy to reinvigorate the
once-unbeatable Apple franchise and to restore profitability. Our goal is
not just to survive, but to thrive; not just to get by, but to win. I
repeat: not just to get by, but to win.
I know that you are disappointed, as I am, that our most recent quarter was
not better. It’s important, though, to realize that earnings are a lagging
indicator. You have to be doing the right things for a while before it
shows up on the bottom line. Your management team is working hard to get
the fundamentals right. Our goal is not just to return to profitability,
but to return to our position of pre-eminence and exceptional growth.
We are also conscious that we have a legacy to fulfill — a responsibility
to the fifty million Apple users around the world. I do not take this
responsibility lightly.
Management tenacity will yield real progress not only in our results, but
also in the way the financial market values us. It will yield real
progress, also, in the confidence the marketplace demonstrates by buying
our products.
I’m grateful for your support through this period, for the support of the
Board of Directors and the dedicated efforts of Apple employees at all
levels.
I want to talk with you today about three things:
First, where we stand in our efforts to transform Apple. We’ve made
significant headway. While much work lies ahead, we’ve completed laying
much of the structural, systems and foundation that will support our
renewal and return us to growth. Second, the actions we’re taking to
sharpen our focus and meet the challenges we face going forward;
specifically, how we will build a long-term, sound business on these
foundations. and, finally, a look at my reasons for confidence and optimism
about Apple’s future.
When I came to Apple a year ago, my first task was to assess the situation.
If I was to help the “patient” get better, I needed to start with a
diagnosis.
Apple, clearly, was in crisis. And the crisis was serious – fundamentally
threatening the sustainability of the company. After careful study, I found
there were, in fact, five distinct crises to deal with.
First, we faced a pressing and immediate liquidity crisis.
Second, a quality crisis was affecting customer experience with some of our
products. These quality issues, by the end of the year, would cost the
company hundreds of millions of dollars in warranty repairs, lost sales,
and goodwill. Most important, faulty products were undermining Apple’s
greatest asset, its loyal customer base.
Third, our operating system development was also in crisis. Upgrades to
System 7 were not forthcoming. In fact, there were no plans for any System
7 releases after 7.5.3. Copland, our intended next generation operating
system, was slipping. Despite some excellent and ground-breaking work, the
project was not delivering a shippable product.
Our fourth crisis was our corporate culture: too often undisciplined,
unaccountable and unbusiness-like. I was astounded at the paralyzing lack
of cohesion and alignment across functions.
And underlying all these crises was a fifth crisis: fragmentation. The
company was simply doing too much, moving in too many directions – and not
enough of it was profitable.
I sometimes think that, when it came to cool new projects, Apple’s eyes
were bigger than its stomach.
The product line had grown overly complex. We had lost focus on our real
customers, the end-users, the Apple loyalists who had once made us the envy
of our industry.
Our business systems were fragmented with no less than 7 different
financial systems and a completely inadequate forecasting system.
Our forecasts were, therefore, unreliable and this served to undermine our
efforts to restore profitability in a timely manner.
In general, we found ourselves with non-competitive pricing – even, in some
cases, when we were selling below our costs. Overall, there was a lack of
harmony in the enterprise.
The obvious result of our fragmentation was expenses out of line with
achievable revenues. But, even more grim, without substantial change that
would take time. there was little chance for improvement.
With so many efforts underway, many lacked enough investment to bring about
an outcome that would have a real impact on the market and deliver
sustainable profits for the company.
Worse, our lack of mature business systems gave only a cloudy view of where
we stood on critical projects and thwarted our efforts to move quickly.
So, that was the diagnosis: five devastating crises that threatened the
company’s actual survival as a viable business.
Any one of these crises would have been a management challenge, but five
defied comprehension. Predictably, my response was two-fold – to put in
place a defense in order to survive and an offense in order to win.
We had an urgent need to start fixing problems and repairing damage.
But we also had to identify the company’s strengths and amplify them. We
had to begin moving forward again… to live up to the dreams and
aspirations of our customer base.
My goal for Apple goes far beyond turning this company around.
I want to recreate the Apple that can once again turn this industry on its
head. I want to recreate an Apple that shocks, amazes, and delights people
all around the world with the power of high technology made easy and
accessible.
My fervent belief is that this is, in fact, much more than Apple’s legacy.
It is our destiny as a company that’s at the leading edge of the world’s
most exciting field of human endeavor. And we will not be denied by the
slings and arrows of a few rough quarters.
With that in mind, let’s look back over the past year and see how we did
against each of the five crises.
When I came on board, Apple’s cash position was precarious. We were broke.
Our hands were tied when it came to serious investment spending — not only
for the future but also to correct existing problems. It left us no room to
take any strategic steps.
We had barely enough cash to conduct day-to-day business – to meet payroll,
to fund receivables, to pay bills. Instead of cash on the balance sheet, we
were financing inventory.
Moreover, we didn’t have a chief financial officer or a treasurer to help
address these issues. Our corporate controller was clearly over worked and
over stressed.
Finding a CFO and securing the financing to move us out of this cash crisis
was clearly an urgent priority. It overshadowed all other efforts.
Today, we’re in much better shape. We ended the first quarter with $1.8
billion in cash. We slashed inventory by 75 percent. When I arrived Apple
lagged the industry in inventory turns. Today, we’ve moved our quarterly
turns up from less than 6 to 12. That’s competitive with the industry
leader.
The second crisis was in quality. Our PowerBook line was so severely
faulted that we had to halt distribution. The quality issue was costing us
directly in warranty repairs and, more important, in reputation and
customer goodwill.
We responded by creating a dedicated quality organization ultimately
reporting to Ellen Hancock. This group now conducts independent quality
reviews before any product is shipped.
The data to date show a 90% drop in warranty claims on our current
PowerBook 1400 models, compared to the 5300s We’re also achieving a 90%
drop in failures on the AppleVision 1710 Displays.
I am pleased to report we’re well on the way to restoring Apple’s
historically strong reputation for quality..
Third, was the operating system crisis. Our customers and developers
demanded – and deserved – a clear roadmap for how we planned to bring them
into the future with System 7 upgrades and with a new, state-of-the -art
OS. And we didn’t have one.
Until we put a viable OS strategy in place, with clear transition path for
customers, we could not have a viable future.
While excellent in some respects, Copland was bogged down in its own
complexities of retaining backward compatibility and delivering the
stability and performance of a fully modern OS. The plan in progress at the
time would not fully accomplish either goal. In fact, the Copland spec even
failed to address the full potential of the Internet.
We took some bold actions, redirecting the project strategy. Because this
is so crucial to our future, I’m going to take a few minutes to talk about
this in a bit more depth.
We needed to accomplish three goals:
* protect our customers’ investment in System 7 applications and hardware
* deliver the benefits of pre-emptive multi-tasking, protected memory,
and symmetrical multi-processing that move us to the next level of
performance and stability.
* and preserve our own investment in Copland by incorporating as many of
the Copland advances as possible.
With regard to the Mac OS our response was to plan releases every six
months and to have at least three such releases defined at any given time.
With regard to a new OS, our response was to identify and define a new
architecture and to implement that architecture in a timely fashion. We did
a thorough and careful exploration of options. NeXT proved to be the answer
– a clear winner.
The choice of NeXT gives us the state-of-the-art benefits we needed
-stability, performance and predictability. In addition it gives us much
more: advanced support for multimedia and an internet-centric design.
It also has superb internationalization capability, so it supports our
worldwide customer base.
But one of the most appealing things about the NeXT environment is what it
offers to developers.
By providing battle-tested, object-oriented tools for streamlining
application development – the most advanced in the market today- our new OS
can offer potentially huge savings in the development process. It’s a way
to reduce time. It’s a way to reduce complexity. Furthermore, we can give
developers a cross-platform opportunity to market their work – develop for
Rhapsody and your application can also run on Wintel and UNIX boxes as
well. NeXT also strengthens Apple in enterprise accounts. That adds up to a
powerful story. And nothing else comes close to matching it. The Rhapsody
architecture will run on the PowerPC computers we’re selling today. So, it
provides an upside for today’s buyers — simply put, it eliminates risk. In
fact it maximizes the potential of their investment with a fully-native
core OS.
We’re also supporting Java, the language of the Internet, in a big way by
working closely with Sun Microsystems. This puts us squarely into the
emerging world of Internet-based, cross-platform application development.
But none of this would work for us if we couldn’t provide continuity with
today’s software. This architecture lets us host System 7 simultaneously
with the new system. This approach not only gives Apple users
compatibility, but also performance that equals or exceeds the current
version of the MacOS System 7.
The new system will be very Mac-like, and will draw the best from both NeXT
and Apple interface design to create an advanced Apple look and feel. Here
again, we are reliving our user friendly legacy.
At the same time we’re building Rhapsody, we’re continuing to develop
System 7. Version 7.6– which wasn’t even defined 6 months ago–shipped –
on time – two weeks ago. Our next scheduled operating system release, this
summer, is planned to deliver the largest single advancement in the OS
since 1984. This new release will integrate and deliver many advanced
features originally developed for Copland including the new multi-threaded
Finder, the first fully PowerPC-native Finder implementation. And updates
are scheduled for early next year and beyond.
Our new OS, Rhapsody , is scheduled to ship to developers this summer, with
the first customer releases next year. We have a strong transition and
migration story for both customers and developers. And, already, developers
are showing strong support for this move.
Let me share with you some of what they’re telling us.
From Jim Barksdale, CEO of Netscape: “We’re extremely excited about
Rhapsody and this whole NeXT merger.” From John Warnock, Chairman and CEO
of Adobe Systems: “… best possible fit…NeXT’s advanced OS design, when
combined with Apple’s leadership in ease-of-use and multimedia, will
provide Adobe and other developers with a robust, compelling platform on
which to build great next-generation software.”
From Paul Moritz, Group VP, Software Products at Microsoft: “We look
forward to working with Apple to understand the new opportunities in and
around the Rhapsody platform.”
From Eric Schmidt, Chief Technology Officer of Sun: “We congratulate you
for the foresightedness to bring to all of us the very best operating
system technology in the world”
With our new OS strategy developed during this fast moving year since I
became CEO, we’ve clearly moved from crisis to opportunity. This is a move
that can return Apple to its accustomed role-galvanizing a community of
developers and customers to blaze new trails that expand quantumly the
potential of the computer age.
The fourth crisis involved Apple’s internal culture. When margins were over
fifty percent, the company seemed to moved forward on sheer exuberance. But
in today’s world of competitive pressures and lower or even non-existing
margins, the lack of cohesiveness and discipline was killing us. Apple
acted less like a coherent organization than a loose coalition of projects;
a collection of tribes instead of a modern industrial enterprise. And
perhaps that is a generous description.
My response has been to build a seasoned management team – including Fred
Anderson, George Scalise, Ellen Hancock and Marco Landi as well as Jack
Douglas, Bob Calderoni and many others. We instituted management training
at all levels. We welcomed back Steve Jobs and Steve Wozniak in advisory
roles.
And the results are already becoming visible. I invite you to watch them
unfold in the coming year. You’ll see more coherence in our product plans
and our financial controls. System 7.6 shipped on schedule, kicking off the
most active new product year in our history. Right now, all projects are
meeting schedule and will, with only a little luck, ship on time.
In the coming year, you’ll see the results of our renewed culture in our
marketing and channel plans as well. I cannot over-emphasize the importance
of our distribution infrastructure to our success.
My aim in this is to harness Apple’s culture, not stifle it.
I want to be clear that there is much I value-and much that you should
value here: The incredible passion and resilience of our employees. Our
insistence on creativity. And, yes, our sometimes evangelical fervor for
the social value of our work. These are jewels you cannot create in
management training seminars. I’m confident that they’ll shine even
brighter with the kind of mature management attention and nurturing we’re
giving them.
The fifth crisis – Apple’s fragmentation – is largely in front of us. And
it is the most urgent near-term management issue we have.
The lesson we are striving to teach is that the totality of our business is
much greater than its individual parts. It is imperative that we have a
single more focussed mission that reflects the myriad of talents throughout
our vast organization.
We made significant headway over the past year: lowering our break-even
point by more than a billion dollars, reducing headcount by 3565, and
selling off facilities.
But as our first quarter indicated, we continue to deliver completely
unacceptable results. It will be necessary to be even more disciplined in
narrowing our focus. We plan to make further cutbacks in expenses to bring
us to a sustainable financial position. I’ll talk more about our plans in a
moment when I discuss the year ahead.
But before concluding my review of the past year, I’d like to report on
some of our moves on offense – initiatives we’ve undertaken to build on our
strengths. These, of course, are just as important as our fix-it actions.
Indeed, in the long-term, it is our strengths that provide value to the
marketplace. It is our strengths that will drive the company forward.
Despite the traumas the company has faced, Apple’s underlying strengths and
values remain fundamentally sound and they align directly with major
industry trends.
We have shipped 26 million Macs, with an estimated 50 to 60 million users.
We continue to hold a technology lead in ease-of-use, publishing, and media
production. We have a world-class brand, and fiercely loyal customers. They
give us high market share in key growth markets such as publishing,
authoring including Internet content creation, education, and the home.
Much has been written about Apple’s declining share of the general computer
market. But the market isn’t monolithic. Apple’s share is concentrated in
high-value sectors which continue to attract developer interest. We hold
the loyalty of customers in our targeted markets by giving them advantages
and distinct user values that they cannot match elsewhere. Let me give you
just a few examples.
Let’s start with our position in media production.
Since its introduction, QuickTime has established itself as the premiere
technology for computer-based multimedia. In the past year, we combined
QuickTime, QuickTimeVR, and QuickDraw 3D into a unified media layer we call
the QuickTime Media Layer or QTML. More than 50% of the digital video data
on the Internet is based on QuickTime technology.
We’ve used redirected Newton technologies and Apple Industrial Design to
provide our education customers with one of the standout products of the
year, the E-mate 300. It provides the basic productivity suite that a
student needs, plus Internet access. It’s rugged, portable,
low-cost,easy-to-use and fun.
It’s designed to work in a networked, client-server environment. And
because it’s priced well under a thousand dollars, it enables schools to
stretch their budgets, while providing computer technology on more desks.
We’ve moved to bring Apple back into the mainstream of the industry,
partnering closely with Sun and Netscape. And I’ve made significant
progress in rebuilding our historical relationship with Microsoft.
Microsoft and Apple have many mutual customers, and we’re finding a number
of areas of alignment where we can better serve those customers.
