Apple Confidential:"Give everyone a free bag of pot every day." - Gil Amelio's Prescription For Apple

by Owen W. Linzmayer ____________________________________________________________________________________________

Aware that the hemorrhaging of Apple's finances was continuing and would result in a second quarter loss of $708 million, on February 4, Amelio announced an executive shuffle that had Jobs' fingerprints all over it. Jobs often referred to Hancock as a bozo who lacked personal computer experience, so it came as little surprise that most of her charges would from then on report either to Avadis "Avie" Tevanian Jr., Ph. D, formerly NeXT's VP of engineering, or Jon Rubinstein, former executive VP and COO of FirePower Systems, who once headed up NeXT's hardware unit. COO Marco Landi was stripped of marketing and operations responsibilities but left in charge of worldwide sales; he quit Apple just two weeks later. Essentially, Amelio's lieutenants had been demoted and Jobs' buddies put into positions of power at Apple, but still Jobs denied having any designs on the CEO spot. "People keep trying to suck me in," said Jobs. "They want me to be some kind of Superman. But I have no desire to run Apple Computer. I deny it at every turn, but nobody believes me."

Perhaps he didn't want to officially run Apple, but behind the scenes he was happy to advise Amelio on which products to keep or kill as the company streamlined its efforts, though he didn't always prevail. For example, Jobs wanted to kill the Newton division, but Amelio tried to sell it and, by late May, decided to spin it off as an independent company. The reorganization was followed on March 14 by the announcement that Apple was cutting another 2,700 positions. "This time, I'm going to use the two-by-four approach," stated a hardened Amelio. "I'm going to put this place through the most gut-wrenching change it's ever had."

Shortly after the consummation of the NeXT deal on February 4, 1997, Jobs' best friend and Oracle CEO Lawrence J. Ellison began boasting to the press that he was again considering making a run at Apple and indicated he had lined up a group of investors that would be willing to back him if he decided to go forward with the plan. Apple's investment bankers informed Amelio there was little they could do to prevent Ellison from taking over if he made a reasonable offer for Apple. The thing that didn't make sense was that most hostile takeover attempts are kept quiet; Amelio suspected that Ellison's true motive was to shake the board's confidence in the job he was doing as CEO.

On March 25, Amelio met with the board to beg for an increase in advertising spending to prop up sales, which were down drastically and showed no immediate signs of recovery. The board of directors began to feel that they had made a mistake in handing the company over to Amelio the previous year. To them, Amelio didn't seem to be attacking problems with the urgency that was needed, and he wasn't the marketing whiz they wanted.

In April, the Ellison takeover rumors gained credibility when Prince Alwaleed bin Talal bin Abdulaziz Alsaud, the 41-year-old nephew of Saudi Arabia's King Saud, purchased 5 percent of Apple's stock, 6.23 million shares, at an average price of $18.52, for a total of $115.4 million in late March 1997. The prince indicated he thought Apple was a strong brand that had potential to regain its former glory and he was interested in listening to Ellison's proposal. For his part, Ellison called off his bid on April 29, but refused to rule out a future takeover attempt. Then on June 26, someone sold a block of 1.5 million shares of Apple stock for roughly $15 apiece. Although many speculated that Jobs had disposed of the shares he acquired when NeXT was purchased, he wouldn't comment on the matter. If an insider like Jobs was dumping every share he owned, that was an ominous sign for Apple, and it further rattled the board.

Apple's board of directors began a 36-hour series of telephone meetings on Independence Day to discuss the situation. On the morning of July 6, board member Edgar S. Woolard Jr. called Amelio at Stonewood, his Lake Tahoe mansion, and broke the news to him. "We think you need to step down," said Woolard. "You've done a lot to help the company, but the sales haven't rebounded." Amelio tried explaining that sales were often the last thing to recover after other aspects of the business were set straight, but Woolard was intransigent. He kept insisting that what Apple needed was a great sales and marketing leader, an idea Jobs had reinforced when the board consulted with him on the matter. Jobs assured Amelio that he had nothing to do with his ouster, but Amelio remains suspicious. "He said he didn't," claims Amelio. "I would say that the data seems to suggest otherwise."

Including the $56 million loss the company would report for the third quarter ended June 27, Apple had suffered over $1.6 billion in losses during Amelio's watch, an amount that wiped out all the profits generated since fiscal year 1991. How much of that loss Amelio is responsible for is hard to say. There's no question he inherited a company in awful shape and made many difficult decisions that had been postponed by his predecessors. The company was manufacturing the wrong products in the wrong quantities, and quality was abysmal. Inventories were high, cash was low, and executives were oblivious to these problems as they protected their fiefdoms and budgets to the detriment of Apple's well being. Amelio laid the groundwork for getting Apple back on its feet by replacing ineffectual executives, hoarding cash, simplifying the product line, releasing the world's fastest laptop and desktop computers, improving quality, spinning off Newton, and establishing a bold new operating system strategy. Nonetheless, after just 523 days in charge, Amelio resigned his positions as chairman and CEO of Apple. The company gave him a one-time lump sum cash payment of $6,731,870, less $1,500,000 as a partial repayment of the balance of a loan, plus 130,960 shares of stock and an additional bonus of $1,000,000. He used part of these proceeds to fund Parkside Group (www. parksidegroup. com), a strategic quality investment firm in San Francisco.

"Working at Apple is like a ride at Disneyland. You know, you always feel as though the bar is down and you're not going to be flung out of the car. This time it's kind of like the ride without the bar. And you just don't know what's going to happen."

-Former director of the Advanced Systems Group Frank Casanova, when asked if he was worried about Apple's future













"By the time this [article] comes out, I should be chairman of Apple."

Oracle CEO Larry Ellison, boasting in the June 1997 edition of Vanity Fair Ellison was elected to Apple's board, but not as chairman, in August 1997 following Amelio's resignation.


Following Apple's announcement of its third consecutive profitable quarter in July 1998, the stock price jumped to a value not seen in over two and one-half years, doubling Prince Alwaleed's investment.





On August 11, Jobs finally admitted he had sold the block of shares in June. "I pretty much had given up hope that the Apple board was going to do anything. I didn't think the stock was going up," he told Time. "If that upsets employees," he huffed, "I'm perfectly happy to go home to Pixar.

Ellen Hancock resigned from Apple the same day as Amelio. In March 1998, she was named president of an Internet startup company called Exodus Communications (www. exodus. com) and became CEO in September later that year.



"Give everyone a free bag of pot every day."

- Former CEO Gil Amelio, when asked by Computerworld "If you were going to prescribe a medicine for Apple, what would it be?"

Spindler left Apple after it reported a loss in the first quarter of fiscal year 1996. Amelio then presided over a series of devastating quarterly losses. After taking control of Apple, Jobs delivered the first annual profit since 1995, and then some.

The above article is excerpted from Apple Confidential: The Real Story of Apple Computer, Inc. by Owen W. Linzmayer, 1999, ISBN 1-886411-28-X, Available from No Starch Press 1-800-420-7240 at a special 30% discount

Copyright 1999 Owen W. Linzmayer; used by permission.

Owen Linzmayer is a San Francisco-based freelance writer who has been covering Apple since 1980. He has contributed to every major Macintosh publication, and currently writes for MacAddict, among other publications. For extensive information on the unvarnished, interesting and turbulent history of Apple Computer, get Owen's book, Apple Confidential.

Click here to go to Owen's web site. E-mail him here:




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