X-POP3-Rcpt: jaques.law@louise Subject: Gil's speech to Shareholders Date: Wed, 5 Feb 97 18:54:13 -0000 x-sender: rogers@mail.apple.com From: Chuck Rogers Mime-Version: 1.0 Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Apparently-To: Dear Developers - Here is the text of Gil Amelio's Apple Shareholders' Meeting address. I was VERY excited by it, and highly recommend that you read it. Here are a couple of things that I want to call out to you: 1. The MacAttack Campagian looks hot! These are the kind of platform, hard hitting ads that we have needed to do for a long time. I think you will share my excitement as you see them. 2. The new products that Gil highlighted are truly exciting! Hoopper is going to kick but! 3. Last quarter, the Mac OS (as opposed to Apple's hardware business) grew 9%. Power Computing sold over 100K units, and Moto said that they sold over 40K units from intro at Comdex in November through the end of the quarter. Moto believes that these sales are new units, not something they are taking from Apple. Best Regards, Chuck Rogers Senior Small Business Evangelist Apple Computer, Inc. ========= Good morning. Members of the Board, Apple Executives, Fellow Shareholders, Fellow Employees. Welcome and thank you for coming. Our annual Shareholders' Meeting this year falls on my first anniversary as your CEO. So it's an especially fitting time to reflect on the past year as well as what lies ahead. As most of you know, I've dealt with troubled companies before. I am well acquainted with what it takes to bring them back to health. When I joined Apple, I said the journey back would take about three years. Today, we're about a third of the way there. We're working hard to move faster, but unfortunately there are no shortcuts, no magic bullets. That aside for the moment, let me confess that I have never felt comfortable meeting with stockholders at a time when the stock is setting new lows. I am no happier about that than you. And you have my word, for both institutional and personal reasons, that I am highly motivated to take all necessary corrective steps to reverse our downward plunge. I know and you know that Apple is worth a lot more than its present market price. But while public perception plays some role in market evaluation, the real driver is earnings. So let me assure you that my very highest priority as I stand here is to get this company in the black as quickly as possible. And to create a sustainable and growing earnings capability that will be fully recognized in the securities marketplace. I want to assure you that I'm using all of my energy to reinvigorate the once-unbeatable Apple franchise and to restore profitability. Our goal is not just to survive, but to thrive; not just to get by, but to win. I repeat: not just to get by, but to win. I know that you are disappointed, as I am, that our most recent quarter was not better. It's important, though, to realize that earnings are a lagging indicator. You have to be doing the right things for a while before it shows up on the bottom line. Your management team is working hard to get the fundamentals right. Our goal is not just to return to profitability, but to return to our position of pre-eminence and exceptional growth. We are also conscious that we have a legacy to fulfill -- a responsibility to the fifty million Apple users around the world. I do not take this responsibility lightly. Management tenacity will yield real progress not only in our results, but also in the way the financial market values us. It will yield real progress, also, in the confidence the marketplace demonstrates by buying our products. I'm grateful for your support through this period, for the support of the Board of Directors and the dedicated efforts of Apple employees at all levels. I want to talk with you today about three things: First, where we stand in our efforts to transform Apple. We've made significant headway. While much work lies ahead, we've completed laying much of the structural, systems and foundation that will support our renewal and return us to growth. Second, the actions we're taking to sharpen our focus and meet the challenges we face going forward; specifically, how we will build a long-term, sound business on these foundations. and, finally, a look at my reasons for confidence and optimism about Apple's future. When I came to Apple a year ago, my first task was to assess the situation. If I was to help the "patient" get better, I needed to start with a diagnosis. Apple, clearly, was in crisis. And the crisis was serious - fundamentally threatening the sustainability of the company. After careful study, I found there were, in fact, five distinct crises to deal with. First, we faced a pressing and immediate liquidity crisis. Second, a quality crisis was affecting customer experience with some of our products. These quality issues, by the end of the year, would cost the company hundreds of millions of dollars in warranty repairs, lost sales, and goodwill. Most important, faulty products were undermining Apple's greatest asset, its loyal customer base. Third, our operating system development was also in crisis. Upgrades to System 7 were not forthcoming. In fact, there were no plans for any System 7 releases after 7.5.3. Copland, our intended next generation operating system, was slipping. Despite some excellent and ground-breaking work, the project was not delivering a shippable product. Our fourth crisis was our corporate culture: too often undisciplined, unaccountable and unbusiness-like. I was astounded at the paralyzing lack of cohesion and alignment across functions. And underlying all these crises was a fifth crisis: fragmentation. The company was simply doing too much, moving in too many directions - and not enough of it was profitable. I sometimes think that, when it came to cool new projects, Apple's eyes were bigger than its stomach. The product line had grown overly complex. We had lost focus on our real customers, the end-users, the Apple loyalists who had once made us the envy of our industry. Our business systems were fragmented with no less than 7 different financial systems and a completely inadequate forecasting system. Our forecasts were, therefore, unreliable and this served to undermine our efforts to restore profitability in a timely manner. In general, we found ourselves with non-competitive pricing - even, in some cases, when we were selling below our costs. Overall, there was a lack of harmony in the enterprise. The obvious result of our fragmentation was expenses out of line with achievable revenues. But, even more grim, without substantial change that would take time. there was little chance for improvement. With so many efforts underway, many lacked enough investment to bring about an outcome that would have a real impact on the market and deliver sustainable profits for the company. Worse, our lack of mature business systems gave only a cloudy view of where we stood on critical projects and thwarted our efforts to move quickly. So, that was the diagnosis: five devastating crises that threatened the company's actual survival as a viable business. Any one of these crises would have been a management challenge, but five defied comprehension. Predictably, my response was two-fold - to put in place a defense in order to survive and an offense in order to win. We had an urgent need to start fixing problems and repairing damage. But we also had to identify the company's strengths and amplify them. We had to begin moving forward again... to live up to the dreams and aspirations of our customer base. My goal for Apple goes far beyond turning this company around. I want to recreate the Apple that can once again turn this industry on its head. I want to recreate an Apple that shocks, amazes, and delights people all around the world with the power of high technology made easy and accessible. My fervent belief is that this is, in fact, much more than Apple's legacy. It is our destiny as a company that's at the leading edge of the world's most exciting field of human endeavor. And we will not be denied by the slings and arrows of a few rough quarters. With that in mind, let's look back over the past year and see how we did against each of the five crises. When I came on board, Apple's cash position was precarious. We were broke. Our hands were tied when it came to serious investment spending -- not only for the future but also to correct existing problems. It left us no room to take any strategic steps. We had barely enough cash to conduct day-to-day business - to meet payroll, to fund receivables, to pay bills. Instead of cash on the balance sheet, we were financing inventory. Moreover, we didn't have a chief financial officer or a treasurer to help address these issues. Our corporate controller was clearly over worked and over stressed. Finding a CFO and securing the financing to move us out of this cash crisis was clearly an urgent priority. It overshadowed all other efforts. Today, we're in much better shape. We ended the first quarter with $1.8 billion in cash. We slashed inventory by 75 percent. When I arrived Apple lagged the industry in inventory turns. Today, we've moved our quarterly turns up from less than 6 to 12. That's competitive with the industry leader. The second crisis was in quality. Our PowerBook line was so severely faulted that we had to halt distribution. The quality issue was costing us directly in warranty repairs and, more important, in reputation and customer goodwill. We responded by creating a dedicated quality organization ultimately reporting to Ellen Hancock. This group now conducts independent quality reviews before any product is shipped. The data to date show a 90% drop in warranty claims on our current PowerBook 1400 models, compared to the 5300s We're also achieving a 90% drop in failures on the AppleVision 1710 Displays. I am pleased to report we're well on the way to restoring Apple's historically strong reputation for quality.. Third, was the operating system crisis. Our customers and developers demanded - and deserved - a clear roadmap for how we planned to bring them into the future with System 7 upgrades and with a new, state-of-the -art OS. And we didn't have one. Until we put a viable OS strategy in place, with clear transition path for customers, we could not have a viable future. While excellent in some respects, Copland was bogged down in its own complexities of retaining backward compatibility and delivering the stability and performance of a fully modern OS. The plan in progress at the time would not fully accomplish either goal. In fact, the Copland spec even failed to address the full potential of the Internet. We took some bold actions, redirecting the project strategy. Because this is so crucial to our future, I'm going to take a few minutes to talk about this in a bit more depth. We needed to accomplish three goals: * protect our customers' investment in System 7 applications and hardware * deliver the benefits of pre-emptive multi-tasking, protected memory, and symmetrical multi-processing that move us to the next level of performance and stability. * and preserve our own investment in Copland by incorporating as many of the Copland advances as possible. With regard to the Mac OS our response was to plan releases every six months and to have at least three such releases defined at any given time. With regard to a new OS, our response was to identify and define a new architecture and to implement that architecture in a timely fashion. We did a thorough and careful exploration of options. NeXT proved to be the answer - a clear winner. The choice of NeXT gives us the state-of-the-art benefits we needed -stability, performance and predictability. In addition it gives us much more: advanced support for multimedia and an internet-centric design. It also has superb internationalization capability, so it supports our worldwide customer base. But one of the most appealing things about the NeXT environment is what it offers to developers. By providing battle-tested, object-oriented tools for streamlining application development - the most advanced in the market today- our new OS can offer potentially huge savings in the development process. It's a way to reduce time. It's a way to reduce complexity. Furthermore, we can give developers a cross-platform opportunity to market their work - develop for Rhapsody and your application can also run on Wintel and UNIX boxes as well. NeXT also strengthens Apple in enterprise accounts. That adds up to a powerful story. And nothing else comes close to matching it. The Rhapsody architecture will run on the PowerPC computers we're selling today. So, it provides an upside for today's buyers -- simply put, it eliminates risk. In fact it maximizes the potential of their investment with a fully-native core OS. We're also supporting Java, the language of the Internet, in a big way by working closely with Sun Microsystems. This puts us squarely into the emerging world of Internet-based, cross-platform application development. But none of this would work for us if we couldn't provide continuity with today's software. This architecture lets us host System 7 simultaneously with the new system. This approach not only gives Apple users compatibility, but also performance that equals or exceeds the current version of the MacOS System 7. The new system will be very Mac-like, and will draw the best from both NeXT and Apple interface design to create an advanced Apple look and feel. Here again, we are reliving our user friendly legacy. At the same time we're building Rhapsody, we're continuing to develop System 7. Version 7.6-- which wasn't even defined 6 months ago--shipped - on time - two weeks ago. Our next scheduled operating system release, this summer, is planned to deliver the largest single advancement in the OS since 1984. This new release will integrate and deliver many advanced features originally developed for Copland including the new multi-threaded Finder, the first fully PowerPC-native Finder implementation. And updates are scheduled for early next year and beyond. Our new OS, Rhapsody , is scheduled to ship to developers this summer, with the first customer releases next year. We have a strong transition and migration story for both customers and developers. And, already, developers are showing strong support for this move. Let me share with you some of what they're telling us. >From Jim Barksdale, CEO of Netscape: "We're extremely excited about Rhapsody and this whole NeXT merger." From John Warnock, Chairman and CEO of Adobe Systems: "... best possible fit...NeXT's advanced OS design, when combined with Apple's leadership in ease-of-use and multimedia, will provide Adobe and other developers with a robust, compelling platform on which to build great next-generation software." >From Paul Moritz, Group VP, Software Products at Microsoft: "We look forward to working with Apple to understand the new opportunities in and around the Rhapsody platform." >From Eric Schmidt, Chief Technology Officer of Sun: "We congratulate you for the foresightedness to bring to all of us the very best operating system technology in the world" With our new OS strategy developed during this fast moving year since I became CEO, we've clearly moved from crisis to opportunity. This is a move that can return Apple to its accustomed role-galvanizing a community of developers and customers to blaze new trails that expand quantumly the potential of the computer age. The fourth crisis involved Apple's internal culture. When margins were over fifty percent, the company seemed to moved forward on sheer exuberance. But in today's world of competitive pressures and lower or even non-existing margins, the lack of cohesiveness and discipline was killing us. Apple acted less like a coherent organization than a loose coalition of projects; a collection of tribes instead of a modern industrial enterprise. And perhaps that is a generous description. My response has been to build a seasoned management team - including Fred Anderson, George Scalise, Ellen Hancock and Marco Landi as well as Jack Douglas, Bob Calderoni and many others. We instituted management training at all levels. We welcomed back Steve Jobs and Steve Wozniak in advisory roles. And the results are already becoming visible. I invite you to watch them unfold in the coming year. You'll see more coherence in our product plans and our financial controls. System 7.6 shipped on schedule, kicking off the most active new product year in our history. Right now, all projects are meeting schedule and will, with only a little luck, ship on time. In the coming year, you'll see the results of our renewed culture in our marketing and channel plans as well. I cannot over-emphasize the importance of our distribution infrastructure to our success. My aim in this is to harness Apple's culture, not stifle it. I want to be clear that there is much I value-and much that you should value here: The incredible passion and resilience of our employees. Our insistence on creativity. And, yes, our sometimes evangelical fervor for the social value of our work. These are jewels you cannot create in management training seminars. I'm confident that they'll shine even brighter with the kind of mature management attention and nurturing we're giving them. The fifth crisis - Apple's fragmentation - is largely in front of us. And it is the most urgent near-term management issue we have. The lesson we are striving to teach is that the totality of our business is much greater than its individual parts. It is imperative that we have a single more focussed mission that reflects the myriad of talents throughout our vast organization. We made significant headway over the past year: lowering our break-even point by more than a billion dollars, reducing headcount by 3565, and selling off facilities. But as our first quarter indicated, we continue to deliver completely unacceptable results. It will be necessary to be even more disciplined in narrowing our focus. We plan to make further cutbacks in expenses to bring us to a sustainable financial position. I'll talk more about our plans in a moment when I discuss the year ahead. But before concluding my review of the past year, I'd like to report on some of our moves on offense - initiatives we've undertaken to build on our strengths. These, of course, are just as important as our fix-it actions. Indeed, in the long-term, it is our strengths that provide value to the marketplace. It is our strengths that will drive the company forward. Despite the traumas the company has faced, Apple's underlying strengths and values remain fundamentally sound and they align directly with major industry trends. We have shipped 26 million Macs, with an estimated 50 to 60 million users. We continue to hold a technology lead in ease-of-use, publishing, and media production. We have a world-class brand, and fiercely loyal customers. They give us high market share in key growth markets such as publishing, authoring including Internet content creation, education, and the home. Much has been written about Apple's declining share of the general computer market. But the market isn't monolithic. Apple's share is concentrated in high-value sectors which continue to attract developer interest. We hold the loyalty of customers in our targeted markets by giving them advantages and distinct user values that they cannot match elsewhere. Let me give you just a few examples. Let's start with our position in media production. Since its introduction, QuickTime has established itself as the premiere technology for computer-based multimedia. In the past year, we combined QuickTime, QuickTimeVR, and QuickDraw 3D into a unified media layer we call the QuickTime Media Layer or QTML. More than 50% of the digital video data on the Internet is based on QuickTime technology. We've used redirected Newton technologies and Apple Industrial Design to provide our education customers with one of the standout products of the year, the E-mate 300. It provides the basic productivity suite that a student needs, plus Internet access. It's rugged, portable, low-cost,easy-to-use and fun. It's designed to work in a networked, client-server environment. And because it's priced well under a thousand dollars, it enables schools to stretch their budgets, while providing computer technology on more desks. We've moved to bring Apple back into the mainstream of the industry, partnering closely with Sun and Netscape. And I've made significant progress in rebuilding our historical relationship with Microsoft. Microsoft and Apple have many mutual customers, and we're finding a number of areas of alignment where we can better serve those customers. At the heart of any computer company, of course, is its technology. And in the past year,Apple technologies have continued to turn heads, win customers and win awards. These are just some of the many awards that Apple technologies and products have won during 1996. They honor our Internet servers, the Color StyleWriter 2200, the Mac OS, and our multimedia technologies, which are widely acknowledged to lead the industry. In addition to these awards, Apple became the first and only technology company thus far to receive a Lifetime Award from the Pacific Design Center.. This award, from California's largest resource for the design and architecture professions, honors our contributions to the design profession. While I'm spending most of this presentation discussing Apple's problems, I wanted to highlight these strengths for one simple reason: Our strengths are deeper, have more resilience, and are much more fundamental to our current reality than our oft-described difficulties. The strengths we possess have been tested for 20 years in a fiercely competitive industry. And they've rooted themselves deeply in the most influential -- and, I am proud to say, most loyal -- customer base in high tech. And though these strengths may have been overlooked during our recent difficulties, they form the basis of my vision for the future of Apple. I see before me a global icon, attempting what no other company on this planet is attempting: and that is, applying the power of high technology to facilitate human expression, creativity, shared experience. This is a humbling legacy, to be sure. But more: it's an inspiring destiny. It's a timeless destiny. And it's a destiny that I, for one, will not be denied fulfilling during my time at Apple's helm. By this time, you may be asking yourself: if the products are so strong, if the underlying strengths are there, if the crises are being addressed, why are we still reporting losses? Why didn't we know about the first quarter shortfall sooner? They're the right questions to ask. So let me spend a moment to clarify what happened in the first quarter and to put it into perspective. As we moved through the quarter there were signs of some significant strengths in our business. Both PowerBook and the Power Macintosh lines were strong, exceeding their targets by 25,000 units. We exited the quarter with a backlog in PowerBooks of about $200 million dollars and a total backlog of $368 million. Our server units were up 40% over the previous year. Sales to education in the Americas unit exceeded expectations. And Europe had an exceptionally strong quarter, with unit shipments up more than 50%. Our figures show that the entire Mac OS platform-combining our sales with our licensees-actually grew by about 9% in the quarter. Up until Thanksgiving, performance was tracking to forecast. We still expected Performas to have their usual late quarter Christmas rally. As we all know, this rally never happened and we reported a $120 million loss. US Performa sales missed their target by 90,000 units against a worldwide miss of 100,000 units. Although we exceeded PowerBook sales forecasts, PowerBooks were down significantly on a sequential basis due to the transition from the 5300 to the 1400. So, even had we hit our targets, it is likely we would have still had a loss, but one that was substantially smaller and consistent with projections for the quarter. Our analysis of the shortfall in Performa indicates that there were a number of factors involved. The competition responded to our early quarter price reductions and spec enhancements. There also was an overall softening in the US retail market. And where we had a leading solution - such as in the Avid Cinema for home video editing - we didn't communicate to US consumers our superiority clearly enough. (Although Apple Europe did very well by stressing solutions rather than just boxes and prices.) Instead our marketing messages were fragmented and soft. These are mistakes we cannot afford to repeat. These are mistakes we will not repeat. When I came in, the forward-looking revenue forecast was projected to be a $10.6 billion annualized run rate. Fred Anderson and I called for a reduction in that plan to $10 billion to give us a reasonable contingency. We then took expenses and headcount down to achieve break even at $9 billion per year as I publicly disclosed at the time. Unfortunately, of course, this forecast has proven to be significantly off. Our team overestimated our ability to generate revenue on what we knew to be less than a full and fully up-to-date product line. These issues will be addressed in short order: both remaking the product line, and balancing our expense line. The time has come to put the fragmentation crisis to rest. We have to make the tough choices in order to move forward. That means we're going to have to get smaller before we can get bigger. Until we restore profitability to the company, we're suspending the merit bonus program for executive VPs and above. And that applies to me as well. It's time for Apple to face up to the fact that we cannot do everything. We can't be in every market. We can't support every technology. We can no longer get bogged down in our own complexity. Going forward, we need to stabilize the business around a sustainable revenue level in the short term in order to prepare for a return to growth and expansion in the longer term. The key to our future success will be to pick our targets and put enough resources behind the things we do, to allow them to prosper. In order to do this, it's necessary for us to take something like $400 million dollars out of our costs. We need to reduce R&D costs. We need to reduce field costs. We need to reduce our general and administrative costs. This means we'll need to cut headcount, and we'll need to drop or divest some of our projects and programs. Our choices are focused on reducing discretionary expenses which do not impact revenue and on setting product priorities based on our strategic focus. It's imperative that we stabilize the business around a sustainable revenue plan. I'm not in a position to announce the magnitude of our restructuring today but these will be addressed during the current quarter. Layoffs are always a painful process. At Apple, we believe strongly in conducting them with the utmost respect and consideration for the people involved. This will remain true in the actions which must be taken in the coming weeks. However, as necessary as these reductions are, I firmly believe that we cannot save our way into prosperity. We must maintain sufficient resources to invest in mission-critical areas such as the Operating System, multimedia and new models. Apple has built its brand on a strongly differentiated product line. We will continue to focus on where we can provide distinctive value. Our strategy will be bi-modal: differentiate where we can lead and where it's important to the customer and standardize everywhere else at a quality/price/ user friendly level that makes us competitive. If you want evidence that our restructuring is about revitalization, not retrenchment, pay attention to the product launches we have lined up this year. This year, 1997, will be our most exciting product year ever. In the coming weeks and months we'll be introducing a completely refreshed product family. You'll see the first of our new products in about two weeks at Macworld Tokyo. There, we will introduce the most powerful portable computer available anywhere on planet Earth; not just the most powerful PowerBook, but the most powerful laptop regardless of operating system. It's the world's first true multimedia portable - with great sound, video and a surprisingly fast PowerPC processor. The 1400 models will continue as our mainstream, more affordable offering. The new PowerBook, code-named Hooper, will put us back in the lead. The PowerBook has been a bellwether for Apple since it's introduction . Historically, when the PowerBook line does well, Apple does well. And this is our best PowerBook ever. No apologies. No excuses. In our desktops, we're aggressively cutting costs out through consolidation of our mother-board designs and the use of industry standard components. At the same time, we'll be boosting the excitement factor through higher performance processors - including the Exponential 533 Mhz chip. Through new industrial design our enclosures will provide a tremendous advance in cable management and easy access to the motherboard. You'll see us thinking and acting a lot more like a systems company. Our education and publishing customers are reaping tremendous benefits from the way our products work together to support collaboration, remote access and simple access to the Internet. So, we have a positive story to tell. And we're going to crank up the volume getting that story out to the marketplace. One of the consistent themes in the mail I get from customers is about our advertising. Customers tell me, you have great products but you don't talk about them. You have tremendous competitive advantages, but you bury them. Your advertising is fluff, soft and not very visible. And you know what? I think they're right. Although we've had some isolated successes, overall, we lost our edge in advertising. And that's unacceptable. I told our advertising people that their job is to get the edge back. And, so, they've been busy getting ready to go on the attack. What do I mean? You will see a change in the tone of our marketing communications. It will be hard hitting. It will challenge the competition.. Let me show you some tangible examples of how we're getting tough. Let's start by answering the most basic question: Why should I buy a Mac? Here's an example of the kind of ad we need to run to our loyal fans as well as some of our most vocal detractors. As you can see, it doesn't leave anything to the imagination. We're getting that message out, not only through advertising, but through all available channels of communication including, perhaps the most credible of all -- word of mouth from our satisfied customer base.. In fact, as you walked in, you were given a Mac Attack Info Kit. The kit is designed to help anyone, easily make a compelling case for the Mac. But, as you know, we have some unsold inventory. So we've also asked our advertising to answer a second basic question for us: "Why buy a Mac now?" This is a newspaper ad that will run in the US in the next few days. As you can see it doesn't pull any punches. It gets people out of their seats and into the stores. And it points out how the other side of the world measures up to us. It will be supported by radio and in-store materials as well. But I've saved the best for last. You all know that I've gone on record saying that this is the year for Apple to get back on top with great products. Well, it's begun. Look at what I mean. This is what you will see in newspapers beginning next week. And this is what you will see on February 18, when we launch some truly amazing products. And finally, as we roll out the great series of products we have lined up, we'll be calling attention to them loud and clear. We have in place plans to make the world take note of the remarkable innovation in our new PowerBook products. We'll be building up the anticipation a "teaser" ad. Our objective with this campaign is to use these product introductions to begin restoring our image as the most innovative company in our industry - once again creating a revolution in computing. Advertising is just the most visible aspect of a full campaign to remake Apple marketing. (SLIDE: Mac Attack collage (including materials, website)) We'll be using our marketing strength to help our developers secure more shelf presence as well. This quarter we launch a "buy three, get one free" campaign. And next quarter some dramatic instore merchandising to create a Mac software "store-within-a-store." You'll see a lot more from this revitalized marketing effort throughout the year. I said at the outset that when I came to Apple, I found some fundamental strengths that provide a sturdy base to build upon. The technology is strong. Our products are in the mainstream. They align with the megatrends of multimedia and the internet. The brand is strong. The customer base has remained loyal.... they want us to win. I've outlined what we're doing to extend that base in all its dimensions: improving the technology, extending our lead in multimedia, revitalizing the brand and energizing our customers. I've also talked to you about the problems I found and what we're doing to address them. We've licked the cash crisis. We've licked the quality crisis. We're well along in licking the OS crisis. We're well underway to transform the company culture. And we're soberly addressing the issues of fragmentation and overextension. I think you're entitled to ask, "Is all this enough?" Will this win us a place at the table? I firmly believe it will. And I want to tell you why. It's still the case that Apple delivers distinctly superior user values. We give customers an edge - in performance and user friendliness - that they can't find elsewhere. By increasing their productivity, they gain an edge that helps them to achieve advantage in their own businesses. The strongest barriers to adoption of our products - compatibility and connectivity - are falling away. The rise of the Internet and the spectacular surge of interest in Java are creating a world in which Macintosh computers become full citizens of corporate networks. Our migration to Rhapsody will give developers an edge in simpler, more manageable code and rapid time to market. And because Rhapsody will build on the cross-platform character of OpenStep, we give developers the additional advantage of a portable, cross-platform programming environment. All in all, we will focus our energy on widening the gap in the distinctively superior user values which have been our legacy: a compelling user experience, performance, connectivity, compatibility and industrial design. So, the opportunity is there. Your company is gearing up to seize it. To do this, I've asked our employees to do three things: * manage the fundamentals to keep us on a firm business footing * focus on the strategic core of our business so we concentrate our efforts where we can make a difference and win * And attack the competition. We're taking our heads out of the sand. We're taking the gloves off. And we're ready for action. In summary, I know that you are disappointed in our recent results and in our stock price. So am I. I came to Apple to help renew the company. And, with the aid of the Apple community, that is what we will do. The basic strategic model revolving around carefully defined user values is essentially the same as that articulated in my speech at last years developers conference. The strategy is right.. . The plans are in place The opportunity is calling. The entire Apple community is ready to seize it. I thank you for your patience and I know we've tried it. But I can assure you that I am 100% committed to bringing this company back to profitability, back to growth and back into a position of industry leadership. The fight is on. Thank you.