John Sculley: How ARM Saved Apple

| Entrepreneurship, Technology

Several months ago, I had the chance to interview former Apple CEO John Sculley about his new ventures and a little bit about the history of Apple. In part one, he talked entrepreneurship; in part two, a bit about the history he had with Apple, and by extension, companies like AOL. In this final edition, we get into Apple’s Newton, how the chip inside kept the company alive, and the success to-date of his OBI smartphone.

JCD: Let’s talk about one of the first tablet computers ever developed, the Newton. How did that come about?


In the days before the Web we were expecting that we would have to build our own telecommunications system. There wasn’t any good way to deliver data over surface switch lines at that point in time. So, we started with General Magic, a venture that we funded at Apple. Then we brought in AT&T, because we needed telecommunications, and we brought in Sony as a partner as well, because we needed the consumer electronics help. Newton was in the same mix and all about communications as well, but in those days all we had was the ability to communicate maybe four to five feet—from one Newton to another Newton. And, of course, it got slammed because the handwriting recognition was promoted and didn’t really work.

JCD: Yes, jokes were written about that.


But the irony is that we had to work with a man named Herman Hauser, who was the creator of the Acorn computer in the U.K., a professor at Cambridge University. He had developed a unique processor for the Acorn, and we worked with him to modify it to work with a processor called ARM.

We owned 43 percent of the ARM at Apple, because it was completely designed as the first Object Oriented programming language application on a low-powered microprocessor. Everything in the ARM was designed around the Newton.

Newton was not successful, but Newton actually made $800 million dollars because Apple eventually sold the 43 percent it owned in ARM, which, by the way, kept the doors open at Apple, just before Steve Jobs came back. It was one of the really important decisions that [Gil] Amelio[the last CEO before Steve Jobs returned] made, and it gave them the cash to buy NeXT. It’s interesting how you can connect the dots by lots of things that happened with a lot of innovation along the way. Things that you don’t often find in history books.

JCD: That story about the ARM is a fascinating one. You have to wonder if Apple had been a little more successful during the Amelio era and had kept ARM what would have happened as ARM has become a very important product.


You know, its market cap today is $26 billion. So, 43 percent of that would be pretty good.

The ARM core is in something like 7 billion mobile devices around the world, so it went on to become pretty important. A lot the original Newton technology is still found in many smartphones today.

JCD: You recently got involved with smartphones. Want to tell us a little about that?


I have a number of businesses over in Asia. I co-founded a firm called Inflection Point; we are buying supply chain companies, everything from IT components to finished IT goods, all throughout the Asian countries, Southeast Asia, India, places like that.  That part of the world is just switching from 2G to 3G. There are literally billions of young people who want to own their own smartphone. The feature phones you can buy for less than $20 over there, but they want to move to smartphones. Most cannot afford $600 for an iPhone. Or, for a high-end Samsung phone.

So, what we observed was, because we are selling to a lot of these contractors in China, we said “Gee, the technology is really commoditized” and we could actually build a very high-quality smartphone without having to invest anything into R&D. Because we’re already in the supply chain business we don’t have to invest much into the administration because we know these markets around the world, from a distribution standpoint. Using a frugal expense model for our overhead while leveraging the commoditization of a smartphone technology, we pulled together a product.

JD: So you created the OBI phone?


We doubled down on industrial design and optimized around things that are important to places like Africa where you have a two-hour bus ride to get home, and when you get home you have no electricity, and you want to listen to music, or watch the cricket scores, or ball scores. We focused around giving people extra battery life and things that were important.

We’ve actually built what looks like a pretty successful business. We’ll do between $300-$400 million in revenue this year. We’re profitable this year, and we’re growing very, very fast. We are into Southeast Asia, Bangladesh, Vietnam. Just headed off to East Africa, Tanzania, Guinea, we’re in all the Middle East countries, all the UA and GCC countries, we’re moving into the CIS countries which are the former Soviet countries. We are not going into Russia at this time, for a bunch of reasons, but there are hundreds of millions of young people—the  number is really billions—who are teenage to early 20s who aspire to a smartphone.

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