Bruised Apple faces harsh facts

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The Independent Online

New York

Increasingly lonely in its battle against the monolithic Microsoft Corporation and hurt by a spate of supply and manufacturing problems, Apple Computer is being forced to consider whether it can survive as an independent company.

The issue was suddenly thrust into public debate last week, when Apple's respected chief financial officer, Joseph Graziano, announced his resignation after he failed to persuade the company's board that the time had come for Apple to sell itself.

The most obvious potential suitor for the company would be IBM, which made a first approach last autumn. Earlier this year, however, Big Blue spent $3.5bn (pounds 2.3bn) on its acquisition of the Lotus Development Corporation and may no longer be interested in the increasingly beleaguered Apple.

Rarely have prospects seemed more bleak for Apple, America's third largest maker of personal computers. Last month, it revealed that because of difficulties keeping up with demand, it was sharply reducing its estimates for revenue and profits in its fourth fiscal quarter.

Also last month, the company was forced to recall some of its Powerbook laptop models after discovering that under some circumstances its battery units could burst into flame. This was on top of the relative flop of its Newton Thinkpad digital organiser.

All the while, Apple has seen its share of the US personal computer market slide to just under 8 per cent. Although some of the slippage has been attributed to management mistakes, the company is continually finding itself up against the brick wall of Microsoft and its Windows operating system.

In an interview with the New York Times, Apple's chief executive, Michael Spindler, attempted to douse the speculation of a merger, but at the same time indicated that, to survive, the company would have to consider alliances with other companies as well as some rationalisation of its operations.

Suggesting that Apple's existing alliances - with IBM, for example, in the development of the Power PC chip - could be deepened, Mr Spindler remarked: "The big question is, how will we stand together?" As to restructuring, he went on: "There are crucial decisions that are going to have to be made about letting go of some parts of a business that are quite unnerving to some people, including ourselves."

Mr Spindler was not coy about Apple's problems, which in recent days have helped push its stock price down to around $36, nearly half the $65.5 it reached three years ago. "This has been the most difficult quarter in our history," he conceded. "Give us one strong quarter and all this will go away."

With the Christmas season approaching, Apple might indeed overcome the worst in the next few months. Any short-term pick-up in sales, however, will do nothing to answer the more fundamental question of how the company is going to endure when large corporations, in particular, are shunning its products in favour of systems designed for Microsoft Windows.