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Apple Computer last year sold a record number of computers, turned around profits and executed a near flawless shift of Mac-intosh to the new PowerPC chip. It has a prized brand, great advertising and an easy-to-use computer with a fanatical following.

And the future of Apple, the world's second-largest PC marketer, is in doubt.

Apple's market share fell in last year's booming market, even while its profits rebounded to $310 million. Software developers are turning from Macintosh to Microsoft Corp.'s Windows, an ominous sign. There's a serious question of whether Apple is big enough to go it alone in an industry dominated by PCs using Windows and Intel Corp. chips.

"What Apple will or won't do over the next two years will determine whether we see the resurgence of an industry pioneer or a company sinking into irrelevance," said Bill Bluestein, an analyst with Forrester Research in Cambridge, Mass.

Apple executives openly admit some problems. Apple's share of the global PC market fell last year-to 8.5% from 9.4%, according to Dataquest-partly because the company didn't fully anticipate the industry boom and couldn't meet demand.

"That was our screw-up," said Michael Mace, director of Macintosh platform marketing. But Mr. Mace said Apple learned the lesson of supply and demand. Last year, he contended, was Apple's nadir in market share.

"I think we have good prospects of producing continuous growth indefinitely," he said.

Analysts disagree. They tend to say Apple's best hope is to hold onto its current share in a growing market or perhaps add a few percentage points, keeping Apple's place as Microsoft's loyal opposition. Worst case is Apple's share slips away as Macintosh fanatics slowly switch to Microsoft.

The jury is out on Apple's belated decision to license its operating system, Mac OS, to clonemakers. The first Mac clones, from start-up venture Power Computing Corp., will appear next month. Apple hopes licensing will grow the market, but outsiders wonder if cheap clones will cannibalize Apple's hardware sales.

An agency executive on a rival computer account said Mac licensing is irrelevant, likening it to what would happen if Sony Corp. announced a big push to license Beta a decade after VHS became the videotape standard.

Macintosh is only as good as the software supply, and this may be Apple's biggest problem. Windows products last year accounted for two-thirds of U.S. PC software sales. Windows software now dominates sales even in some categories that Apple once owned, such as desktop publishing.

Microsoft, meanwhile, is planning its biggest marketing blitz ever for Windows 95, an operating system due in August that's intended to out-Mac the Mac on matters like ease of use. Software publishers are following the money.

"Apple's biggest publishers now tell me they look at Windows first and Mac second," said Bruce Lupatkin, an analyst with Hambrecht & Quist, a San Francisco investment house.

Mr. Mace labeled Windows 95 "a nice little product."

But there's nothing little about it. The good news for Apple is that Windows 95 likely will arrive with bugs and will have a hard time living up to its hype. When reality sets in, Apple could pick up business, said David Lubars, president of Apple agency BBDO West, Los Angeles.

BBDO and Apple's marketing staff have undergone significant management changes during the past year. But Allen Olivo, who joined Apple in January as director of worldwide corporate advertising, strongly affirmed the relationship.

"If anything, we're trying to strengthen the relationship," he said, noting Apple expanded BBDO's international assignments. BBDO handles the PC marketer in every key market except Japan.

BBDO and Apple have been together for nine years, the longest existing agency relationship for any major computer marketer, and are close to renewing their contract, Mr. Olivo said.

In the latest sign of the ad power that has been generated by the Apple-BBDO fusion, in June the PC maker will be inducted into the American Marketing Association's National Marketing Hall of Fame.

Mr. Olivo plans no radical shift in advertising, though he wants to unify formerly disparate print and TV efforts and stamp "Apple Macintosh"-the company's "most important brand"-on all advertising.

Apple seems intent on continuing its hard push into business-a losing battle, say many observers who think Apple needs to focus on the home market. Apple is also repeatedly the subject of takeover rumors, and Mr. Lupatkin said there are "reasonably good odds" Apple will get bought this year.

"I don't think Apple can be successful going it alone," he said.

Apple and BBDO insist the best times are still ahead. "It seems to me the people with the best product win," said the agency's Mr. Lubars.

The problem is Macintosh has always been a better computer-and an also-ran. That's not likely to change.


Headquarters: Cupertino, Calif.

Sales: $9.2 billion in year ended Sept. 30

Leadership: Michael Spindler, president-CEO; Dan Eilers, senior VP-worldwide marketing and customer solutions; Mike Dionne, VP-worldwide marketing services; Allen Olivo, director-worldwide corporate advertising; Jim Buckley, president, Apple USA; Marco Landi, president, Apple Europe; John Floisand, president, Apple Pacific.

Worldwide ad spending: $150 million-plus in 1995

Ad Agency: BBDO Worldwide, Los Angeles

Recent success: Smooth shift of Macintosh to PowerPC chip, a feat in an industry accustomed to glitches when products undergo major changes in technology.

Challenges: Turning around slumping market share; convincing software developers Apple has a future; exploiting Apple brand in consumer market; trying to keep new Mac clones from cannibalizing Apple hardware sales; weighing merits of staying independent vs. being acquired.

Source: Advertising Age and company reports

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