ODD MAN OUT Sculley's abrupt decision to step down as Apple's CEO hints at a restlessness shared by many talented executives. Is he looking to catch the next technological wave?
By Alan Deutschman REPORTER ASSOCIATE Alicia Hills Moore

(FORTUNE Magazine) – HE WOULD SLEEP an hour here, an hour there, maybe three or four hours at a stretch on his own Learjet. Sleeping through the night is an outmoded remnant of the agrarian and industrial ages, he said in all seriousness during an interview this spring. ''People don't live that way anymore. It's a 24-hour day, not an 8-to-5 day.'' What else to expect from the highest-profile evangelist of the postindustrial, knowledge-based, speed-driven, REM-deprived Information Age? Sleep eight hours in a row? One of his assistants, sitting in on the meeting, laughed aloud at the notion. When John Sculley, 54, chairman and CEO of Apple Computer, wasn't en route to Japan (seven trips a year) or Europe (six) or Washington (more and more these days) or Greenwich, Connecticut (most weekends -- his third wife, Leezy, lives there), he would awake at 3 A.M. at his 14-acre horse ranch overlooking a country club in Woodside, California. He'd watch the business news from Japan and Europe on satellite and answer his ''links'' (jargon for Applelink E-mail) on his PowerBook 180. Then he'd steer his green 1984 Mercedes station wagon along winding I-280, darkness enshrouding the voluptuous, sun-scorched Stanford hills he used to roam with Steve Jobs in the lost days when they dreamed and schemed together. By 5 A.M. he'd be in humble, low-rise Cupertino, jogging through the postmodern Apple campus, where there wasn't a soul save the few programmers who never seem to go home. He'd work out at the Apple Fitness Center, then head over to De Anza 7, an inconspicuous four-story structure next to the Any Mountain ski store -- a rather unlikely setting for the power center of what is still the world's most profitable personal computer company. He'd turn on the lights. By 7 A.M. a few close assistants would arrive so he could hold his first meeting and get on with it. The onrushing digital revolution waits for no one. That was Sculley's routine right up until the fateful morning of Friday, June 18, when he abruptly resigned as CEO, though he remains chairman. He clearly thrived on the pace and the power. In dozens of public appearances and in a series of interviews with FORTUNE this spring, Sculley showed absolutely no sign of weariness in his race to keep up with the technology business. ''We live and breathe it seven days a week,'' he said, the ''we'' a reference to high-tech CEOs such as himself and Microsoft's Bill Gates, with whom he likes to compare himself. ''We thirst for it. We love it. People feel sorry for you sometimes, but they don't understand.'' He talked about how it had been an ''incredible'' year for him, with opportunities abounding, such as the possibility of joining the Clinton Administration or running IBM. But in the end, he said, he had to pinch himself as a reminder that he had it so good right where he was. He often told audiences that Apple had successfully completed the first three years of an ongoing five-year transformation that would strengthen its role as a leader in information technology. It sure sounded as if he meant to stick around to see the plan through. But the behavior of this unusual and complicated man told a different story. Early in the year word got around Washington that Sculley had lobbied hard to become Secretary of Commerce. Even by Silicon Valley standards of CEO eccentricity, Sculley's offhand remarks about Apple's future -- and his own -- were singular. ''I can see the day when Apple won't be in the personal computer business,'' he told FORTUNE in April, voicing enthusiasm for untried products and technologies he had pushed for -- and a pronounced lack of it for Apple's $8-billion-a-year existing business. Earlier this year, even as he promoted Apple and himself furiously, Sculley was shopping the company to prospective buyers. He suggested combining Apple with the healthier parts of IBM when approached by IBM's CEO search committee. PC Week, a trade newspaper, recently revealed that Sculley also tried to peddle Apple to AT&T in meetings with Chairman Robert Allen and other executives. The oddest episode occurred in June, shortly after Apple announced that profits for the fiscal year ending in September would fall well below Wall Street's expectations. As Apple stock sank from $57 to around $40 a share, the same price it had carried six years earlier, Sculley gave an interview to USA Today in which he spoke wistfully of moving back to the East Coast and running a startup company. Two days later Sculley was out. Acting, it said, at Sculley's request, the board appointed President Michael Spindler, 50, as CEO. Sculley had described Spindler as his ''full partner'' in running Apple, but transferring the CEO - title marks a real shift in power -- the biggest since 1985, when the board dumped Jobs and put Sculley in sole command. Sculley is still chairman, but he no longer runs any part of Apple. He is off the company's powerful seven- member Executive Management Team, which Spindler now heads. And in keeping with his belief that the CEO must make the most important decisions about technology, Sculley also gave up his cherished role of chief technology officer. His job henceforth: to serve as Mr. Outside, keeping Apple in the public eye as the symbol of personal computerdom and figuring out strategic alliances that could serve the company in the 21st century. Why the move? Sculley supplied a litany of reasons, some quite mystifying for an all-star workaholic. He said he no longer wanted to keep a ''killer schedule. It's no way to live.'' He said he wanted to spend more time with Leezy. He proclaimed that the job of running Apple had become too big for one person -- a surprising way to characterize a decision that concentrates authority in his successor's hands. Sculley said he had a big pile of books to ''devour,'' and he wanted to take the sabbatical due him this summer (all Apple employees are entitled to a six-week paid leave every five years). He said he couldn't take the time off if he had to oversee the company's ''streamlining.'' (Rumors are circulating of impending layoffs of up to 25% of Apple's 15,000-person work force.) But Sculley took a sabbatical once before as CEO, repairing to Maine in 1988, where he proceeded to work almost as hard, and just as effectively, as most people do in normal circumstances. Apple's seven-member board closed ranks around the ex-CEO, saying that Sculley had initiated the shift. ''I can't fault John for wanting more balance in his life,'' explains vice chairman A.C. ''Mike'' Markkula Jr. ''Now he doesn't have to use his intellectual powers on concerns like human resources and finance. And this way we can keep him involved rather than lose him.'' Whether the new arrangement will work -- or whether Sculley and Apple have taken the first step toward divorce -- seems to depend on what Sculley really wants. That has been one of the great mysteries of Silicon Valley from the day in 1983 when he quit PepsiCo to join Apple. Sculley likes to think of himself as a Renaissance man, motivated by the thirst for knowledge rather than by ambition. Hours after he stepped down, he spoke to FORTUNE about his fascination with the ''reorganization of work'' in the Nineties and his desire to study the pyschological and sociological aspects of changes in the workplace. Sounding professorial, he explained his need to shed executive duties for other pursuits: ''I have an almost insatiable intellectual curiosity about everything.'' But coming from a man who has proved himself the ultimate corporate survivor, power player, and spin master, that can hardly be the whole story. What does it mean that one of the most visible and listened-to CEOs in America no longer wants to run a FORTUNE 500 company -- even one whose customers love its products and whose name is a household word from Warsaw to Osaka? Sculley's decision to step aside -- in the middle of his five-year plan, just when products he nurtured are about to come to market -- reflects not just trouble in Cupertino. It hints at a restlessness shared by a whole generation of talented businesspeople. Could it be that John Sculley envisions better uses for his time than running, or working for, a big company that needs fixing? The son of a wealthy Wall Street lawyer, Sculley was raised on New York's Upper East Side and attended Buckley, Brown, and Wharton. As a child he was bookish and inward, inhibited by a severe stammering problem that he finally overcame when treated through hypnosis as a teen. His fascination with technology dates from then. He invented a color-TV tube in 1954, at age 14, and his patent application lost out by only a few weeks to a competing application that later evolved into the Sony Trinitron. Mitchell Kertzman, chairman of Powersoft, a Burlington, Massachusetts, software producer, recently found himself sitting on an airplane next to Sculley's wife. Leezy told him point-blank: ''The thing you have to understand about John is that he's a nerd, and he's always been a nerd.'' Although he's leaving at a difficult moment in the company's history, Sculley's achievements at Apple shouldn't be understated. Since his arrival, annual sales have risen from $983 million to $8 billion. Now Apple is just as big as Pepsi was back in 1983, when Sculley quit the sugar-water purveyor for a chance to change the world. Apple runs neck and neck with IBM for No. 1 in U.S. personal computer market share. The company is still the pacesetter in making computers easy to use. And Apple has maintained its mystique as the quintessential garage startup turned FORTUNE 500 star. YET . . . despite his relentless pace, despite a full decade of struggle, despite his influence with the likes of Bill & Al & Hillary & Gorby, Sculley never entirely moved out of the long shadow cast by that smooth-talking, self- promoting, barefoot ex-hippie Steven P. Jobs. Apple's main business is still the Macintosh, the computer that Jobs personally hatched by inspiring, cajoling, and haranguing a renegade band of gifted engineers. Sculley expanded the business after Jobs's ouster in 1985, but spoke of that part of his job somewhat dismissively as a ''stewardship assignment.'' He needed more. He bought in completely to Jobs's belief in the transforming effect of technology and was driven by a desire to make his mark on the company through breakthrough products or entirely new businesses created on his watch. Remarkably, Sculley now confesses that he was out of his depth trying to run Apple in the Eighties because, his teenage excursions into TV tubes notwithstanding, he lacked technical knowledge. The board recruited him largely because of his reputation as a marketer, and early on the Pepsi alumnus drew attention with splashy publicity plays such as those shocking anti-IBM TV ads broadcast during the Super Bowl. But Sculley soon realized that Apple wasn't really in the consumer marketing business -- it was in a technology business. Ergo, he says, succeeding as a CEO depends on thoroughly understanding the technologic realm, getting to the point where you can be ''intuitive'' or ''almost instinctive'' about decisions. That's no easy task. He figures it took him 15 or 16 years to become intuitive about the soft drink business, which is rather stable and predictable, especially compared with high tech. In his early days at Apple, Sculley tapped two twentysomething programmers, Joe Hutsco and Mike Homer, as his personal technology tutors. ''He's a very bright, curious guy who was interested in how everything worked,'' recalls Homer, who left Apple in 1991 to head marketing for Go Corp., a maker of software for pen-based computing. (Hutsco also left Apple, dropping out of sight and even off the Applelink network. He's rumored to be writing a scandalous roman a clef about the company.) WHILE SCULLEY was getting paid rather well to learn about computers, he entrusted vital decisions about technology to others -- first Jobs, then Jean- Louis Gassee, a flamboyant Frenchman. As R&D chief, Gassee presided over the comically misnamed Macintosh Portable, which weighed in at a truss-busting 16 pounds. . Sculley admits that leading Apple without knowing much about technology was ''like trying to do brain surgery in the first year of medical school.'' Lou Gerstner, are you listening? ''I didn't really know enough in those early years to be able to have a strong point of view in terms of where the industry was heading,'' says Sculley. ''It took me a lot longer than I had ever expected to learn how to be really effective. I just wish I knew as much seven years ago'' -- his first year as chairman -- ''as I do now.'' His biggest regret: allowing Apple to guard its technical breakthroughs jealously rather than licensing other computer makers to build Macintosh clones. Because customers were willing to pay more for the Mac's unique ease of use, built-in networking, and nifty industrial design, the strategy guaranteed fat profits for years. But it trapped Apple in a niche. PCs that use Microsoft operating-system software, meanwhile, captured 90% of the market, as thousands of independent hardware and software developers flocked to Bill Gates's DOS standard. Slowly but inexorably, Apple's technology advantage eroded. The Mac had a user-friendly, graphic way of displaying information on-screen back in 1984; Microsoft matched the feat by 1990 with its version 3.0 of Windows, software that brings Mac-like features such as icons and pull-down menus to IBM- compatible machines. Since then Microsoft has sold some 27 million copies of Windows, dwarfing the ten million Macs currently in use. Meanwhile, other software companies have produced hundreds of Windows-compatible applications programs, which are outpacing Mac applications three to one in sales dollars. By 1990, Sculley felt he knew enough to start reshaping Apple in his own image. He pushed out Gassee and, much to the astonishment and dismay of Apple executives and knowledgeable outsiders, appointed himself chief technology officer. ''To be honest, I didn't think he could do it,'' says technology tutor Homer. But the CEO surprised the skeptics, immersing himself in the technology. Today he effortlessly bandies the easily garbled acronyms of computing and telecommunications and delights in the arcane. He peppers his speeches with technobabble like ''isoquantic shift'' (translation: paradigm shift). His presentations seem more like college lectures than thinly veiled sales pitches, and audiences come away convinced that they have heard a bona fide intellectual. Sculley's longish, uncombed hair adds to his professorial air, as does his notion of business attire: khakis or blue corduroys, greenish or blue oxford button-downs, and (for dressier occasions) a gray herringbone tweed jacket. HIS BIGGEST MOVE in 1990 was to put in place his sweeping five-year plan. It involved cutting Mac prices to build market share and financing a host of long-range R&D projects aimed at diversifying the company's business. The price cuts have brought mixed results. Apple's slice of the personal computer market grew impressively, from 9% to more than 12%, but lately has flattened and is still far short of the 20% that chief financial officer Joe Graziano says Apple is shooting for. Meanwhile, profits have stalled: At an estimated $485 million this year, they're no higher than in 1990. Worse, Apple is in a bind: It is locked in price competition with lean, efficient makers of IBM clones that have become increasingly adept at innovation, traditionally Apple's game. For example, Apple's notebook computer, the PowerBook, was way ahead of the crowded field when it came out in 1991. But now some of the coolest notebooks are machines sold by IBM and Hewlett-Packard. Apple has little option but to keep cutting costs. Its gross margin (revenue minus cost of goods sold) has declined from 53% in fiscal year 1990 to 38% in the quarter that ended this March -- but is still fat compared with Compaq's or Dell's 23%. Says vice chairman Markkula: ''The Macintosh business will have to be run as if it were Dell, because that's what the margins are.'' While Apple managers still like to think that their company stands apart, Wall Street measures Apple against the clonemakers. That helps explain why Apple's price/earnings ratio is a discouragingly low 10, well below half the S&P 500 average. ''The share price is just dead in the water,'' Sculley acknowledged this spring. ''Apple's base business is stuck in a rut in a commodity PC industry. The personal computer business as we have known it is not very attractive for the Nineties.'' Granted, PCs aren't nearly as much a commodity as, say, colas. But Sculley didn't relish the prospect of fighting it out in a brutally tough market, as he'd had to at Pepsi. This time he asked, ''Is there a better way to apply all our tremendous talent so we can get higher shareholder value?'' The answer was yes. Apple's hidden strength, he decided, is in making technology easier to use, a feat accomplished mainly with clever software. Sculley wanted to seize upon that skill and ''move Apple from the traditional PC business into the reinvention of the television and the telephone,'' which he sized up as huge opportunities -- and as a chance to make his own indelible imprint. Or as he put it: ''This is really going to be much bigger than personal computers.'' Apple's first step toward reinventing the television is EZTV, a scheme for software that will enable consumers to order movies, go shopping, and play games on their sets. The product is still mostly on the drawing board. If Apple enters the market, it will face formidable competition, including an alliance of Microsoft and the two biggest cable TV operators, TCI and Time Warner. The first step toward reinventing the telephone is the Newton, Apple's long- awaited, mercilessly overhyped hand-held communicator, or ''personal digital assistant'' (PDA) in Sculleyese. The basic or ''generic'' Newton, as its designers call it, will reach consumers this summer if all goes right, to be followed in the next year or so by myriad related products from Apple's new Personal Interactive Electronics division (a.k.a. Apple PIE -- how cute). Details are fuzzy about the follow-ons -- one may have a built-in cellular phone, another may come with a bigger screen. All are supposed to be more focused on communications than on computing. Apple is also hard at work on frontier technologies, such as speech recognition, in its Advanced Technology Group, run by David Nagel, Sculley's closest technical adviser. Four other major projects help account for Apple's huge R&D budget -- an estimated $680 million this year: -- Taligent, a joint venture with IBM that aims to produce a new software standard to serve users as they outgrow their Macintosh and clone machines. -- PowerPC, a joint venture with Motorola and IBM. It will build low-cost, high-performance microprocessors aimed at breaking Intel's market dominance. -- Kaleida, a joint venture with IBM to develop software that will make it easier for programmers to combine video, sound, data, and graphics in multimedia CDs. -- A new Apple division, Enterprise Systems, that recently announced the company's first ''servers'' -- brawny PCs that serve as data libraries and electronic post offices on office networks. All this R&D has resulted in an avalanche of new products scheduled to hit the market in the next 18 months: servers, the first PowerPC chips, multimedia software, and, of course, Newton. Says CFO Graziano: ''It won't take long to see if they take off.'' If not, he continues only half jokingly, Apple is ''cooked.'' Sculley says that 1994 will mark the company's most crucial test since 1986, when the Mac was selling far below expectations and revenues were flat. Yet just before his departure as CEO, Sculley seemed serenely confident that Apple would triumph. FORTUNE asked, What if the personal digital assistant business, which Sculley had described as the ''next big thing,'' wasn't that big after all? ''Of course, it's a possibility.'' But isn't Apple essentially staking its future on the Newton and other ventures outside the traditional PC business? ''Oh, absolutely. Anybody who runs a successful high-technology company has to be an eternal optimist, has to be able to take big risks. You're constantly betting the future of the company. If you stop, if you lose your courage, you fail . . . Do I wake up at night worrying? Not a bit. I'm absolutely convinced. I think Apple is going to be in the catbird seat this time around.'' Sculley describes his goal: to transform Apple over the next few years into a company that gets most of its profits from software and services rather than hardware. ''It's becoming harder and harder to make a buck selling hardware,'' he explains. He draws a telling analogy to another industry: ''No fax manufacturer in the world makes money,'' he says, but fax has been a windfall for the phone companies, which charge for the calls. Such insights lead to the astonishing core of Sculley's vision. By the year 2000, he predicts, Apple will simply give away hardware and make its money by providing services, software, and customized solutions. The first step in this direction is the Newton. Apple isn't looking to earn much from the product, which will list initially for less than $1,000 and should in time come down to a few hundred dollars, with profit margins as thin as a chip. In a reversal of its Macintosh strategy, Apple also plans to license Newton software to other manufacturers, to encourage the production of clones. Apple hopes eventually to cash in by charging users of laptop computers and PDAs for electronic mail, stock quotes, and other information it will beam to their machines via telephone or wireless hookups. In preparation, the company recently launched an operation called Apple Online Services and will distribute startup communications software free with new PowerBooks. For a monthly fee (not yet disclosed), users will be able to exchange E-mail, fetch data, and do their banking. The open question is whether Sculley's bold vision is right after all -- and whether Apple will pursue it under its new chief. The ascension of Spindler, a sales and marketing pro who has never worked in product development, clearly signals an emphasis on Apple's PC business rather than on the futuristic projects championed by Sculley. Spindler, 50, was born in Germany. Trained as an engineer, he worked in Europe for Intel and DEC, then ran Apple's European operations from Paris before moving to Cupertino as president and chief operating officer in 1990. Spindler's low profile during Sculley's tenure as CEO obscured some impressive achievements -- insiders say Spindler was the principal architect of Apple's joint ventures with IBM. ''Spindler's like a white tornado,'' says Roger McNamee of Integral Capital Partners in Menlo Park, California, a money manager who spends a few hours a month hobnobbing with Spindler. ''He has an infectious enthusiasm and so much energy it's harmful to his health. The guy doesn't stop for anything. He's not the deep visionary John has made himself out to be -- he's the ultimate hands-on guy.'' Adds Chuck Boesenberg, former senior VP of sales at Apple and now CEO of Central Point Software of Beaverton, Oregon: ''Mike will be even more aggressive than John -- he'll increase the pace of change.'' The fate of Apple's employees is highly uncertain. Lots of resumes are getting faxed from Cupertino amid rumors that 3,000 or more jobs will soon go. As an employer, Apple has a history of binge and purge -- 1,250 workers were added in 1983, 1,200 laid off in 1985, 1,600 added in 1987, and 1,500 laid off in 1991. Even in good times, the company's human-resources situation has been a bit unusual. Sculley says that Apple brings to mind Logan's Run, a 1976 sci-fi flick in which people mysteriously disppear when they turn 30 (it turns out they're getting processed into food). He figures that one-third of the members of new-product development teams typically leave the company once they've finished the project, weary and burned out. More than a few go hiking in places like Nepal. Most come back to Apple after six months or so and join a new team. Guy Kawasaki, a former Apple executive who now writes a column for & Macworld magazine, says that Apple's marketing force is ''the largest group of migrant workers in California.'' However, Apple's work force has definitely been aging -- not exactly graying, but starting to get receding hairlines or a bit of cellulite. The average age is now 35, up from around 25 a decade ago, and family concerns are finally surfacing among the young achievers. There's still no retirement plan -- other than periodic layoffs. Sculley has a strong financial incentive to stay on. His compensation remains unchanged -- he drew $1.65 million in salary and bonuses last year. He plans to remain active, he says: ''I'm still chairman of the board and probably the most visible and best-known person at Apple.'' But without the mantle of real power, it's unclear whether he'll command the same celebrity. Perhaps he should seek advice from his pal Mikhail Gorbachev (Sculley sits on the board of the Gorbachev Foundation). Spindler apparently wants Sculley to continue his energetic campaign for public attention. Four days after stepping aside, Sculley was back on his personal destination assistant (the Learjet) doing his usual thing. (The plane is his own. Apple pays operating costs for business trips, but not for weekend travel home to Connecticut.) He flew to L.A. to meet with Warren Beatty, Quincy Jones, and home shopping pooh-bah Barry Diller. The next morning he arrived at the local CBS studio at 3:45 for a live appearance on CBS This Morning to talk about his resignation. Later that day, he delivered the keynote address at a Beverly Hills conference for computer and movie industry executives (his subject: EZTV), gave an interview to CNN, and huddled with movie king Lew Wasserman. Lunch was with cellular phone baron Craig McCaw. Meanwhile, Spindler announced he wouldn't give interviews for at least two months. While Sculley has effectively replaced Steve Jobs as Apple's icon, even Spindler's fans say that the new CEO will never take on that role. Says Roger McNamee of Integral Capital: ''John still has a lot to contribute. We haven't seen the last of John Sculley.'' For now at least, Sculley remains a celebrity who can attract the interest and curiosity of people in Hollywood, book publishing, and cable TV, areas in which Apple will need powerful allies to become a major competitor in the multimedia field. But as much as Apple still needs John Sculley, John Sculley doesn't necessarily need Apple. Having ridden the wave in Cupertino for ten years, he may be looking to catch the next one. He has always shown a knack for timing his career moves to take advantage of the changing zeitgeist. In the Seventies he opted for a hot field -- consumer marketing. He took a big career risk in the Eighties by walking away from Pepsi -- where he was widely considered a contender for the top spot. Forgoing the security of an East Coast establishment company for the risk and uncertainty of an upstart in a strange new field, he left a lot of people perplexed. But the PC was already showing its potential, and Sculley arrived in time to participate in years of incredible growth. Pepsi was a relatively mundane business -- just as, in his eyes, Apple's personal computer has become. His stepping aside as CEO may portend a jump into a field that holds more excitement and potential for growth -- the convergence of computers, communications, and media on the electronic superhighway. One person who has seen him through several metamorphoses believes Sculley is ready to go. PepsiCo Foundation Chairman Don Kendall, his former father-in- law and mentor and still one of his closest friends, says Sculley wants the ''new challenge'' of launching a startup company. Kendall says that a month before Sculley's resignation, Sculley visited Kendall's house in Greenwich, Connecticut -- near Sculley's own East Coast residence -- and talked about his startup dreams. Sculley talked about them once again at Kendall's place the day after his resignation. Which field is Sculley tempted by? ''What that's going to be I don't think anyone can say now,'' replies Kendall, but he hints that the new venture might be related to the electronic superhighway. When will he make the jump? The highway is abuilding quickly. Says Kendall: ''John can't wait too long or else he won't have a chance to do what he wants to do.'' And Apple? Long the epitome of the unconventional Silicon Valley newcomer, the company has made yet another transition in its migration to being like more traditional companies -- from Steve Jobs, techno-visionary, to John Sculley, business guy cum techno-visionary, to Mike Spindler, pure business and operations guy. Robert Puette, head of Apple USA, once joked that the 17- year-old company behaves the way you'd expect any teenager to behave. Spindler's rise signals that once again Apple is maturing a little. And once again John Sculley has an opportunity to reinvent himself.