Climbing back from the brink

Summary:For Novell and Apple, it was time to gloat as they confounded all the experts.

You don't see many second acts in an industry as unforgiving of mistakes as this one, but in 1998, a couple of former high-flyers recovered from near-death experiences to confound the experts.

For Apple Computer Inc. (Nasdaq:AAPL) and its charismatic "interim" CEO Steve Jobs, it was an opportunity to gloat. The company came into the year in what the sports pages would describe as a rebuilding phase.

After reaching $11 billion in annual revenues in fiscal 1995, Apple's sales were expected to plummet to around $6 billion in fiscal 1998.

Although the new team running the company under Jobs was making progress, few people outside of the diehard Apple crowd were expecting very much -- and for good reason: Apple was a company burdened by years of management and strategy turmoil. The company was bleeding market share as it fell behind the pricing curve, standing pat as rivals came out with computer systems for less than $2,000. Just as important, software developers were increasingly reluctant to write applications for the Macintosh, saying it made little sense to sink scarce resources into a computer platform that was fading fast.

But Jobs put a brake on the slide in Apple's fortunes as the company cut costs, refocused marketing and began to turn out products on time. And with the hugely successful rollout of the iMac, an exquisitely designed consumer computer, Jobs had the hit machine that Apple needed. After launching the iMac on August 15, Apple's unit shipments soared 28 percent in its fiscal fourth quarter, beating the growth rate of the computer industry for the first time in five years.

The company's $106 million profit was impressive enough. But considering where Apple had been -- in the year earlier quarter it lost $161 million -- the performance was that much more cause for surprise.

Another surprise was being hatched a few hundred miles to the east where Novell (Nasdaq:NOVL) was doggedly rebuilding its battered business.

Once the unchallenged leader in network operating systems, Novell had turned into the underdog in an uphill battle against mighty Microsoft. The company was still suffering indigestion pains associated with a series of ill-considered acquisitions carried out under previous administrations.

Enter new CEO Eric Schmidt, who faced the mother of all repair jobs when he took the reins in April 1997. Schmidt, whose previous tour of duty as chief technology officer at Sun Microsystems, had a distinguished curriculum vitae but there was nothing in it to suggest he would prove a latter day Al Dunlap. Yet Schmidt took to the task like a duck to water as he cleaned up an inventory mess while sprucing up an aging product line. Just as important, he whacked away at a bloated expense structure, creating a leaner, smaller Novell that began to hit on all cylinders.

Meanwhile, surprise of surprises, Novell beat Microsoft to the punch when NetWare 5 flew out the chutes on time while Windows NT 5 was stuck in a seemingly eternal beta test. Novell's message was that its directory services, which are included in NetWare, can manage files, applications, routers and hubs.

Challenges aplenty still face both Apple and Novell. In the case of Apple, the company still needs to prove that it's not a one hit wonder. What's more, the iMac has been popular with current Macintosh owners. But can Apple expand its appeal beyond the Mac faithful? In the hardscrabble, Wintel-dominated computer industry, the competition is only getting tougher.

Similarly, it's too early too pop the champagne corks at Novell. How badly will an expected spending slowdown, caused by apprehension over the Year 2000 problem, hurt Novell? Novell has yet to articulate a clear, long-term vision that would convince former corporate customers that it's again a safe bet for the long haul.

Topics: Apple, Hardware, Microsoft, Operating Systems

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