Amelio, Hancock out of Apple

update CUPERTINO, California--In a sweeping management shakeup, Apple Computer (AAPL) said today that chief executive Gilbert Amelio and executive vice president of technology Ellen Hancock have resigned from the company.

As part of the fallout, Apple cofounder and strategic adviser Steve Jobs will assume an expanded role as a key adviser to Apple's board and executive management team. Apple's executive vice president and chief financial officer Fred Anderson will assume additional responsibilities for the company's day-to-day operations.

Jobs, Anderson, Vice Chairman A.C. Markkula, and Director Edgar Woolard will form a committee to search for a new CEO.

"In pursuit of the best interests of our shareholders and our customers, we now want to move forward and return the company to growth and sustainable profitability," Woolard said in a statement. "We believe that with a customer-focused CEO and Apple's product and technology portfolio, the company will have the necessary ingredients to return to success."

Woolard, also chairman of DuPont, declared that Apple has made "significant progress in addressing the crises which were threatening its viability." The company has improved its cash position, reduced operating expenses, and improved product quality, Anderson added.

Amelio joined Apple in February 1996 and is the second chief executive in 1-1/2 years to leave the company after a boardroom shakeup.

While Anderson stopped short of saying whether Amelio was forced out, he did say in a conference call that "the board is not happy with the financial performance of Apple and it wants us to get on sustainable profitability."

He added: "Gil's background didn't fit the profile of what was necessary to get the company growing again." Anderson had no comment on Hancock's departure.

Amelio pointed out in a letter to Apple employees that his resignation was announced by the company, not himself, further fueling the widespread belief that he was ousted by the board.

Anderson noted Jobs will work with Apple's management team to "review Apple's product strategy." He did not rule out the possibility of including devices such as network computers in the future, saying no decisions had been made.

In his letter to employees, Amelio said he would remain with the company as an employee, not an officer, until September 27 in order to effect a smooth transition of the executive office.

Despite the criticism, he defended his record with Apple by listing several issues: shortage of cash and liquidity; poor-quality products; a lack of a viable operating system strategy; a corporate culture lacking in accountability; and fragmentation.

"Today, these problems are either resolved or well on the way to being addressed," he noted. "It has been very difficult, but much has been accomplished in the last 17 months as I believe will be come increasingly evident in the months and quarters ahead."

He added that Apple's remaining challenge is "to rebuild the sales volume. On a personal note, I look forward to once again being able to spend a little more time with my family."

Apple said it will announce earnings for its third fiscal quarter on July 16. The computer maker, which reported a second-quarter net loss of $708 million, is expected to shrink its loss to $68.2 million for the third quarter, according to a consensus of analysts by First Call. But the estimates vary widely from $121 million to as low as $11.3 million.

In mid-March, the company cut 2,700 permanent employees and 1,400 part-time and temporary workers in an effort to shrink its operations and match costs with declining revenues.

Hancock's responsibilities will be reassigned to Avie Tevanian, now senior vice president of software engineering, and Jon Rubinstein, senior vice president of hardware engineering. Both Amelio and Hancock were recruited to turn around Apple after a successful stint at National Semiconductor.

"I will be working to close down next week," Hancock wrote in an email to CNET's NEWS.COM. "Given the new leadership in the company, I do not believe that I would be able to operate very effectively. I had stayed to help Gil [Amelio]; since he is now leaving, that gave me another reason to leave."

Amelio's leadership has come under sharp criticism, as the company has failed to return to consistent profitability. In recent months, Oracle chief executive Larry Ellison has floated the idea of buying Apple, and then abruptly dropped the plan. Ellison and Jobs are close friends. An Oracle spokesman said today that neither Oracle nor Ellison had any comment on the news.

Shares of Apple stock hit a ten-year low on July 1. The stock closed today at 13-11/16, down 1/16. The announcement of the management shakeup came after the markets had closed; trading in Apple's stock was briefly halted in after-hours trading.

The members of Apple's executive management team will be Tevanian, Rubinstein, Anderson, Guerrino De Luca, executive vice president of marketing; Dave Manovich, executive vice president of worldwide sales and service; Jack Douglas, senior vice president, general counsel, and secretary; and Jim McCluney, senior vice president of operations.

Anderson said it was "too early to gauge" the response of today's announcement on Apple's rank and file. In a memo to employees, the new executive management team said: "The board and Gil have agreed that it's time to look for a CEO with a different profile to accomplish our goals...In its search for a new CEO, the board will seek an experienced industry leader who would be able to steer Apple toward growth."

Reaction to the news was mixed. "It doesn't matter who the king is," said Timothy Wood, director of research for Omni Development. "If it's not Amelio, so be it. Rubinstein and Tevanian are still there. The important thing is to get the new OS out the door and get people using it."

Some resellers criticized Amelio's efforts in sales and marketing and blamed management for a lack of vision and too many reorganizations.

"Our sales were abysmal," said Eric Walton, vice president of product management at Entex Information Services, a large corporate reseller. "We've probably had a 50 percent drop."

Others defended Amelio and Hancock's tenure. "Amelio and Hancock started Apple on a long overdue transformation," said Larry Tesler, Apple's chief scientist. "Acting in the long-term interest of Apple's shareholders and customers, they had the wisdom and courage to acquire Next and the very talented people who are invigorating Apple today."

Zach Kranzler, an Apple contractor, said that employees had heard rumors about the shakeup. Kranzler said he was "bummed out" and surprised that Hancock was leaving, but said that Apple is resilient.

"Apple users are the cockroaches of the universe," he said. "There could be a nuclear blast and Apple will survive." 

Reporters Tim Clark, Alex Lash, and Mike Kanellos contributed to this report.

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