APPLE TURNOVER?

By JOSHUA QUITTNER

Michael Spindler, chief executive officer of Apple Computer, must be hoping bad things don't occur in fours. First, the company issued a recall on its new high-end laptop after two of them burst into flames at Apple offices. Then Apple reported that its quarterly earnings would be significantly below expectations, largely because the company could not produce computers fast enough. The third blow was Wall Street's swift reaction, which sent Apple shares plummeting by 15% of their value in two days. The fourth thing?

Apple's regular board of directors meeting is scheduled for next week, and the board will certainly be appraising Spindler's two-year-old reign. The ceo was brought in as the nuts-and-bolts guy to fasten the company back to earth after the board forced out the blue-sky guy, John Sculley. Now is it time to send for a new guy?

Not likely, say Spindler's supporters, who point out that he's well on his way to doing precisely what he was hired to do. Shortly after taking over, Spindler brought costs under control by laying off 2,100 of Apple's 13,000 employees. He broke with tradition by licensing Apple technology to outside firms that have begun manufacturing a wave of low-cost Apple clones, which could help the company by attracting cost-conscious buyers and increasing market share. And last year he began shifting production to the new Power Macintosh line of computers, a tricky task that involves switching over to new suppliers and parts while phasing out old inventory. The technical press loved the Power Macs, and so did Apple's faithful users; the company has sold more than 2 million of the computers since March 1994.

Nevertheless, Apple is in trouble. For one, the demand for the new Power Macs has proved to be a mixed blessing. Anxious to avoid a repeat of 1993, when supplies of PowerBook laptops exceeded demand, Spindler's staff erred in the other direction, drastically underestimating the demand for the new line and failing to produce enough to meet orders. Apple expected growth for its computers to peak at 23% a year, a few points higher than the industry average for computers; demand growth, however, turned out to be a stunning 35%, says Tim Bajarin, a Silicon Valley computer marketing consultant. Says he: "Demand for Macintoshes is running higher than it's ever been." The company now has $1 billion worth of unfilled orders. And Wall Street doesn't like that. Nor do customers.

Making the backlog worse is a shortage of several key parts--from microchips to modems--Apple buys from outside vendors to put in its computers. The company has been turning to alternate suppliers and trying to allocate its inventory better, but "we still expect demand will outstrip supply until January," says Apple spokeswoman Betty Taylor.

It is a sad chapter in the history of a company that has come to symbolize the classic American nerds-to-riches story. Founded by college dropouts Stephen Wozniak and Steven Jobs in 1976, Apple scored its biggest breakthrough with the 1984 introduction of the Macintosh, which popularized the mouse as well as a point-and-click menu system. The Macintosh attracted millions of converts who realized for the first time that computers might represent not Big Brother or Big Blue but just the opposite: personal empowerment.

But prices for Apple's computers were high compared with the more competitive IBM-clone market, and the Mac found itself increasingly limited to the niches it now tenuously occupies: schools and desktop publishing. The rank-and-file computer buyer was less interested in exquisite engineering than in sticker price. Apple's share has dropped from about 15% of the personal computer market to 8%.

Helping to push it down is Microsoft's operating system, Windows 95. While Apple fans have been deriding Windows 95 as the technological equivalent of Apple's 1989 operating system, the criticism sounds shriller and shriller. That is because the vast majority of software developers write programs for the Windows market first. Mac versions come later, if at all. "The problem is, you walk into a store with someone and try to convince them to buy a Mac, and there's not enough compelling software to make you want to say, 'Boy, I'm sure glad I have a Mac and not a Windows 95 machine,' " says David Coursey, the editor of PC Letter, an industry publication.

While takeover attempts and mergers have been rumored, most experts still assert that Apple's prospects for survival are good. Its core business, truly excellent software that makes computers easy to use, has hooked some 20 million die-hard customers. "There are times when you look at Apple and you see the Wang of the future: the once highflyer that became irrelevant to what's going on," says Coursey. But, he adds, "yes, the Mac still works better. Yes, it has a better operating system. And yes, Apple is headed in a good direction."

And what will Spindler's own direction be? Despite rumors that his job may be in jeopardy, A.C. Markkula Jr., the chairman of Apple's board of directors, told the Wall Street Journal late last week that there are no plans for any management changes and pronounced Spindler "a very brilliant man." Of course, that's what they said about Sculley, after he stepped down.

--Reported by David S. Jackson/San Francisco and Barbara Rudolph/New York

With reporting by DAVID S. JACKSON/SAN FRANCISCO AND BARBARA RUDOLPH/NEW YORK