IP: TEXT OF MESSAGE FROM SPINDLER TO APPLE EMPLOYEES

[Dave Farber <farber () central cis upenn edu>]

Text of message from Spindler to Apple employees
January 29, 1996


Dear fellow employees,


As Apple faces some of the toughest times in our company's history, I know that 
each of you is extremely eager to get more information about our plans moving 
forward and what impact it will have on you. Given the hyped-up media coverage 
about Apple, I know it is extremely difficult for you to sort out truth from 
speculation and to cope with the cloud of uncertainty hanging over the company.


I would ask you to take the time to read this memo carefully and thoughtfully. 
It is long, but I felt it was important to share the direction the management 
team and I are setting.


While I can't provide you with answers to all your questions right now, I know 
that silence can be the worst enemy. So let me begin by acknowledging that these
 are incredibly stressful times for all of us. I know, too, that the lack of 
information to give you a better sense of our direction frustrates you, as much 
as it frustrates me.


Following my comments at last Tuesday's shareholder's meeting, I want to 
reiterate the sense of accountability that I feel personally for the situation 
we find ourselves in. No one is more disappointed than I am at what has happened
 to us in the face of high hopes and expectations that we all have for the 
company.


While the naysayers have rushed to write our obituary, let me remind you of the 
great things Apple has achieved, and we can continue to achieve, because of our 
unassailable technology assets, our installed base of fanatically loyal 
customers, the attraction of our brand, and most importantly -- the incredible 
talent of our people.


Our products represent far more than sterile computing devices for crunching 
numbers or typing letters. For both you, and our customers, the fortunes of this
 company are emotional issues, entwined with a sense of who we are and what we 
can become. In these critical days, it is imperative for us to draw on that 
reservoir of idealism about the company. Our vision of personally-empowering 
technology is relevant, durable, and exciting. And no company has better talent 
to pursue and attain that vision than we do. More than anything, I value the 
hard work, dedication, and the loyalty you demonstrate in both good and bad 
times.


Now, we face difficult, but necessary, decisions and tradeoffs in order to 
re-build Apple and fundamentally change our business proposition to return the 
company to financial health. While our philosophy of empowering people to do 
their best using the best technology has not changed, our business model must.


As I stated in my link to you with the earnings announcement on January 17, we 
are taking steps to license more broadly than we have in the past. We are 
focusing on producing best-in-class products in the business, education and home
 markets, and less on ``me-too'' products.


And this is just the beginning of what we have to do. The management team has 
been working very hard to chart a direction that will turn around our financial 
performance. Each member of my direct staff has been asked to put together 
operational and executable actions against the strategy. They will communicate 
those as actionable decisions are made. Recognize that some of these are 
long-term directions. My team is working on timelines and transition strategies.


I will also address our immediate short-term issues in a moment. Let me walk you
 through what we already know.


STRATEGY


(1) Our markets and customers. Here we have been, and remain consistent, for two
 years. We have picked our markets and identified our customers in home, 
business, and education. They are in publishing/media, technical/scientific, 
learning, the entertainment industry, in business sectors -- small or large -- 
where creative knowledge workers exist, and in the home -- working and learning,
 at all ages.


Customers who fit this profile resonate with our products and our company. They 
appreciate our attention to detail, the uniqueness, and the quality of 
solutions. With these customer, our focus should be to gain expertise and 
understanding of their occupations and problems. In these segments, we start 
from positions of strength. We will invest more in our strengths, and less in 
mere ``opportunity.'' This is a change.


(2) Our products. Our product strategy for these customers is to deliver 
exceptional technology, of high quality that are valued for their ability to 
empower people -- individually or in groups -- to be creative, produce high 
quality work, and be productive -- with beautiful products, that engage, excite,
 and inspire.


Two key technology trends we have identified as drivers in the information era 
are multimedia and the dramatic growth of the Internet. We are focusing on using
 our innovation in these areas to drive higher visible -- software and hardware 
-- differentiation, and less ``me-too'' into our product offerings. This is a 
change, and will help us to sell more profitable products.


(3) How we build products. When the PC industry started, companies like Apple 
and IBM built factories and a high degree of integration in operations. The 
reason was, in a young industry there was little industrial infrastructure -- we
 had to do it all ourselves. More recent entrants to the PC industry have not 
had to invest in physical factories. Some like Dell or Gateway simply do 
assembly with little or no R&D (research and development), while others buy 
complete ready-made systems, pop on their logo, and act only as distributors. 
Therefore, these latter entrants to the marketplace have a cost advantage -- 
they do not have to make the capital investments that we have.


Through broad, aggressive and rapid licensing we want to allow more companies 
who have different economic models to go into the business of designing, 
building, and selling Mac-compatible products. This way, we get more people 
filling in all the price-performance gaps in the Mac market offering. And Apple 
can focus on it's strengths, and it's franchises. We are making good progress on
 removing the technical issues that made it difficult for others to build 
Mac-compatible systems, so we are aggressive in our present discussions 
withpotential new licensees.


What Apple needs to do is to leapfrog to the ``next'' business execution model 
where a company of Apple's skills will manage the interface between suppliers 
and customers. This means that over time, Apple will perform less of the 
physical work on logic boards, and ASIC (application-specific semiconductor) 
building, etc. This is not entirely new. For instance, in the past few years we 
have been outsourcing an increasing percentage of our boards. Today, up to about
 50 percent of our boards are outsourced. We need to accelerate this 
outsourcing, and look more to leverage other people's fixed costs. Apple should 
concentrate on the areas where Apple adds unique value, and our customers are 
willing to pay for that added value.


In addition, we are planning to rationalize our product lines to do fewer unique
 logic boards and design centers, and build deeper, better resourced engineering
 teams on those activities to increase our quality, time-to-customer acceptance,
 and sustained engineering. With this broad simplification we will continue to 
play in all markets. Customers should see a less confusing product offering from
 Apple, higher quality, and a steady stream of innovativeproducts, built and 
assembled with partners in a much more leveraged model.


(4) We absolutely still have a market share strategy. With emphasis on 
profitable marketshare. Our market share strategy is key from a platform 
standpoint. In other words, the attractiveness for the developers starts with 
the number of Mac-compatible seats, and number of software purchases per seat. 
With the aggressive entry of licensees into the Mac market, we would expect the 
platform share to grow over time.


In the old PC-market industry definition however, any profitable market share 
gains will happen slowly, not dramatically. So in addition to the Mac OS 
(operating system) licensing strategy, we are testing one new weapon to change 
the nature of the game. We will do two things:


(a) we will ``put'' into the market entirely new multimedia devices that attract
 a different category than the traditional PC; and


(b) we will do so without necessarily selling ourselves an Apple-labeled device,
 because our traditional PC business model is too costly to profitably sell 
these sub-$1000 products.


The first test is a device called Pippin. The first company that will market and
 sell a Pippin is Bandai, the world's second largest toy company -- creators of 
PowerRangers -- who are transforming themselves into a multi-media company.


Pippin connects to a television set, runs rich multimedia software -- 
edutainment -- and with Netscape software, allows access to the Internet.


Since Pippin software runs on any Mac-compatible -- i.e. upward compatible, each
 Pippin adds to the Mac OS market share. Remember, the real goal is to 
profitably increase our market share, by taking advantage of multimedia and 
Internet trends. Apple does not invest in manufacturing, distribution, or 
titles. Remember I said before: ``Use other people's fixed costs.'' We do design
 and get paid for that, and we get royalties. We get paid when any company ships
 hardware. And with key content when a software title ships.


The Apple brand lives even if we choose not to sell such a device ourselves. 
Each device carries the Apple name. We put no marketing expense against it. 
Devices like Pippin have a chance to grow the Mac OS market share quickly 
because of price-performance, and a different audience than the traditional PC. 
Some other keys -- it is a pure licensing and intellectual property model; and 
second, we repurpose existing Apple technology investments. This is a goodmodel.


(5) How we distribute. Each of our markets, and different regions have very 
different distribution dynamics and are at different stages of evolution. As a 
general strategy, we want to evolve with our channels towards more efficient and
 effective distribution models that match our customers needs. We will increase 
our focus on Value Added Resellers -- VAR's -- and System Integrators -- SI's. 
This is a change. They are effective, they stay more with our brand,they are key
 in delivering complete solutions to our target customers, and they help us 
deliver mid-range and high-end systems that help our bottom line.


Any evolution in manufacturing and distribution as I have described, requires 
significant deliberation, and thought, as well as very close consultation with 
our current partners. So expect these changes to happen over time.


SHORT-TERM FOCUS


(a) First, public relations/communications and air cover. I recognize that it is
 incredibly difficult to sell right now because the media frenzy and speculation
 of our demise is causing our customers to hesitate and even hold up product 
orders. Direct communications to our customers and the general marketplace will 
be stepped up. Already, letters and electronic mail are being sent to customers 
by some market divisions. Direct corporate communications is needed to 
complement those efforts. Starting this week you will begin to see this in print
 adsaround the world. Other components will follow to sustain the campaign.


I urge you to not believe any media reports -- no matter who they quote, even if
 they say ``sources close to the company'' or ``an executive who refused to be 
named.'' These are no friends of Apple and their intent is disruption. When 
there is anything new to report, we will communicate to you directly -- that is 
our commitment to you.


(b) We must continue with the rapid implementation of the first restructuring 
phase to bring our costs down, in line with the new market realities. This 
starts with managing our spending. Unfortunately, this also includes layoffs 
which will be extremely painful for all of us. However, as we have always done 
at Apple, we will do this with dignity, integrity, compassion and fairness.


(c) As you are no doubt aware, we have a significant inventory challenge. The 
good news is that the quality is good, i.e. they are fresh products. We really 
need you to work with your management and customers, to focus on programs, 
strategies, and any other activity that will move our existing inventories. This
 should be everyone's number one priority, as it directly affects our cash 
position. I cannot over express the absolute urgency. Reassure your customersof 
Apple's commitment to them and to our mission. The most important thing you can 
do right now is support our sales efforts in any way you can.


Last Thursday night, our chairman, Mike Markkula, Kevin Sullivan, David Nagel, 
and I had the privilege of presenting the 1995 CEO Technical Achievement Awards,
 for technical innovations that resulted in significant economic benefit for 
Apple. It was a good reminder of the incredible talent, resourcefulness, and 
creativity in the Apple community. It exists in all areas of the company. It was
 also a wonderful reminder that there is so much more to come from Apple.


For some of us, this journey we have chosen is more than just a place to draw a 
paycheck. More than ever, we rely on the passionate support and loyalty of our 
most important asset -- you. I know many of you are weary. Let's be positive and
 supportive of each other. Our customers and partners want us to comeback strong
 -- they tell us so.


Finally, let us not forget that Apple makes the best personal information 
products in the world today. You know it. I know it. And we are going to launch 
a re-energized effort to tell anyone who will listen.


This company will turn around, as it has done before.


Thank you for your support.


Sincerely,


Michael