(FORTUNE Magazine) – HIGH ON THE LIST of Apple Computer's talents is ''event marketing'' -- turning corporate announcements into extravaganzas that reap lavish press coverage. Lately, though, the press has been trumpeting events that the Cupertino, California, company would prefer not to publicize at all. From the end of May to the middle of June, Apple reorganized in a rush, fired 20% of its work force, announced that it would record its first-ever quarterly loss, saw its stock hit a three-year low of $14.25 a share, and stripped Steven P. Jobs, Apple's 30-year-old co-founder and chairman, of all operating authority. John Sculley, 46, president and chief executive, ruefully remarked that Apple's - moves were attracting as much attention as an episode of Dynasty. Jobs's fate has aroused intense speculation. Not just another brash young entrepreneur, he is the Johnny Appleseed of personal computing, the leading broadcaster of ''technology for the people.'' Until June, Jobs led the development and marketing of the Macintosh computer, an easy-to-use, technologically advanced machine on which Apple has staked its future. Many insiders are shocked by his removal; they fear Apple has lost the spirit and vision that made it into a business phenomenon. Says one: ''They've cut the heart out of Apple and substituted an artificial one. We'll just have to see how long it pumps.'' No players in the drama have explained publicly why Jobs came to grief. But several of them, promised anonymity, have revealed the essential details to FORTUNE. Though Jobs, a celebrated visionary, and Sculley, a driven corporate professional, are radically different personalities, they formed a strong bond. Sculley seems to retain an unusual affection for Jobs even today. ''I decided to change my life and come to Apple,'' he says, ''because of my admiration for Steve and what he had done. Our reorganization was all the more painful because we are such close friends.'' What emerges from Apple sources is a tale of adversity -- a general slump in the personal computer business and disappointing sales at the Mac division -- driving a wedge between Sculley and Jobs. Apple's board of directors, with strong-minded outsiders such as Arthur Rock, the San Francisco venture capitalist, played an important part in Jobs's downfall. On several occasions, beginning last December, the board goaded Sculley to assert his authority over the company. Even then, Sculley put off acting, partly from innate caution about radical organizational change and partly out of concern for Jobs's feelings. But Sculley was forced to reorganize, thus neutralizing Jobs, when he learned that the chairman was plotting to depose him. Viewed dispassionately, Apple's reorganization is a further step in an overhaul Sculley has been working on slowly since May 1983, when Jobs wooed him away from the presidency of Pepsi-Cola USA, the beverage subsidiary of PepsiCo. From the beginning, Sculley says, his mission was to teach Apple marketing and improve its response to retailers and customers. That meant merging the company's nine highly decentralized divisions, most of which had broad responsibility for a product line, into an organization structured according to such business functions as engineering, manufacturing, and marketing. One marketing group, for example, would handle advertising and promotion for all Apple products. Transforming Apple was a tougher task than Sculley first imagined. Under Jobs the company had acquired a near-maniacal focus on products: the chairman electrified Apple's corps with talk of ''insanely great'' new computers, and he made stars of product designers. By the beginning of 1984, though, Sculley had managed to consolidate Apple's divisions into just three: a sales division for all products, a division for the Apple II family of products, and one with the forthcoming Macintosh as its centerpiece and Jobs as its general manager. The organization appeared to work at first. Under Delbert W. Yocam, 41, a sober, buttoned-up Apple veteran who had risen through manufacturing, the Apple II division turned in a record performance. In calendar 1984 it sold an estimated 800,000 Apple IIe's and portable IIc's, ringing up revenues of nearly $1 billion. William V. Campbell, 44, an aggressive marketer and former football coach whom Sculley had hired away from Eastman Kodak, managed in less than two months to hire and train 360 people for Apple's field force selling to dealers. Jobs's division, having launched the Macintosh in January, sold some 250,000 Macs by year-end, less than its goal but more than the legendary IBM PC had achieved in its first year. The Mac division pulled in revenues of some $500 million, though the costs of introduction ate into profits. Hairline cracks in the Jobs-Sculley partnership showed up around October, as friction between the two product groups heated up. The Mac division, whose managers Apple had publicized as superstars, considered itself the company's elite. That spirit had helped it develop the technologically sophisticated Macintosh on a crash schedule, but it irritated Yocam's group. The Apple II division was producing more of the company's sales and most of the profits, yet the Mac division seemed to get all the perks. For a time these included free fruit juice and a masseur on call. According to several insiders, Jobs, a devout believer that new technology should supersede the old, couldn't abide the success of the venerable Apple II. Nor did he hide his feelings. He once addressed the Apple II marketing staff as members of the ''dull and boring product division.'' As chairman and largest stockholder, with an 11.3% block, Jobs was a disproportionately powerful general manager. And he had disproportionate enthusiasm for the Mac staff. Says one of them: ''He was so protective of us that whenever we complained about somebody outside the division, it was like unleashing a Doberman. Steve would get on the telephone and chew the guy out so fast your head would spin.'' AN EXECUTIVE who has left the Apple II division recalls seeing things from a different perspective: ''We used to say that the Mac people had God on their team.'' In February, Steve Wozniak, the company's other co-founder, designer of the original Apple computer and an engineer in Yocam's group, left in a huff. Apple might have endured these rivalries without a major upheaval had it not been for mounting business pressures. The company's stunning Christmas quarter, which lends a false sheen to reported results for the four quarters through March 1985, was followed by a worrisome winter and spring. For the first time ever, Apple had no back orders left over from Christmas; dealers were wallowing in inventory. Apple earned a record $46 million on sales of $698 million in the Christmas quarter, largely on the strength of the Apple II. But it cleared only $10 million on sales of $435 million for the three months that ended March 29. That was hardly more than the company's profits of $9.1 million on far smaller sales of $300 million for the comparable quarter of 1984. Jobs's Macintosh division had planned on selling 150,000 Macs over the Christmas season but fell short by 50,000 or so. Mac sales declined to an average of only 19,000 units a month in the first quarter of 1985, then fell further. Apple's stepped-up effort to sell the machine to businesses (FORTUNE, April 15) was making no headway. Some Apple executives blamed Michael Murray, 30, then director of Mac marketing. Research showed that the messages Murray had been trying to send the market weren't getting through. Recalls a former Mac staffer: ''Mac was being perceived as a cutesy, avocado machine for yuppies and their kids, not as an office machine or as the technology leader that it is.'' But product development was also in disarray. Jobs and his director of engineering, Robert L. Belleville, a brilliant designer, were missing schedules for crucial parts of the Mac system. They were months behind, for example, with a large disk drive that would help Mac run sophisticated software programs for business and make it easier for users to share information. As Mac sales kept heading south, Jobs and Sculley started bickering. Until this year Jobs seemed to be the chief executive's mesmerizing alter ego. ''John adored Steve,'' says one Apple executive. ''They would finish each other's sentences.'' Even Sculley admits that, ''like many people, I fell under the sway of Steve's charisma.'' But Sculley, who thinks that part of his job was to ''help Steve grow as a manager,'' was pressuring Jobs to deliver new products on time. Jobs retorted that Sculley didn't understand the nuts and bolts of the business or how products were developed. In conversations with friends at Apple, Jobs started questioning Sculley's competence. By early April the backbiting reached a point where Sculley scolded Jobs about it. Jobs felt the dressing-down was just a ''lovers' quarrel.'' Sculley, informants make clear, felt otherwise. The rift between the two men widened at the April 11 board meeting. For months Apple's top managers and board members had been discussing a reorganization, part of which called for bringing in a more seasoned manager to run the Mac division. At times Jobs seemed to accept the idea and had hinted he might like to run a new research and development operation within the company. At other times he seemed to worry that bringing in someone who had not been part of the Mac development team would sap the division's spirit. One of Jobs's lieutenants recalls that ''Steve was genuinely frightened that a blue-suited marketer with an MBA wouldn't understand Mac's technological possibilities. He didn't want any bozos around whom he couldn't control.'' At the board meeting, the directors urged Sculley to make it clear that he was the chief executive officer. Sculley answered that it was hard to act as a C.E.O. when he had to boss a general manager of the Mac division who happened to be chairman of the board. At a meeting unpleasant for all, the board resolved that its chairman would relinquish his Mac position. According to his friends, Jobs has not forgiven Sculley for what seemed to him a cruel surprise attack.

But nobody had set a schedule for Jobs's abdication, and in the following weeks he seemed to forget the meaning of the board's resolution. ''In John's mind, it was to be a phase-out, but in Steve's it was a reprieve,'' says a source close to both. The difference in perception led to the final eruption. As part of their plan to strengthen the Mac division, both Sculley and Jobs had been courting Jean-Louis Gassee, 41, head of Apple France, as an eventual replacement for Jobs. Gassee, a strong-willed and erudite mathematician who had built his own electronic calculator at the age of 14, was responsible for turning Apple France into the company's fastest-growing and most profitable foreign division. Despite his arrogance, Gassee was a respected veteran of Hewlett-Packard and Data General. Sculley planned to move Gassee into the Mac division as marketing director and make him general manager at some unspecified date, and Jobs agreed; Gassee insisted on getting a written guarantee pinning down the date of his promotion to general manager. JOBS WAS OUTRAGED by this demand. He felt that Gassee should first prove himself in the Mac division, as other managers had. But Jobs also seems to have had second thoughts about relinquishing his own authority and about what power would be left to him if the Mac division disappeared in a restructuring. Jobs began suggesting to his friends that Apple was too small for both Sculley and himself: the board would have to choose between them. The day after Apple announced that Gassee would become marketing manager for the Macintosh, Jobs called together his top aides -- Murray, Belleville, Deborah Coleman, Mac's manufacturing director, and Susan Barnes, the controller -- at the Mac building in Cupertino. Jobs asked, in a hypothetical vein, whether these managers would stick with him if forced to choose between Jobs and Sculley. They all said yes, but with more reluctance than enthusiasm. Thus began a one-week attempt at a coup. Reportedly, Jobs had already been testing his standing in talks with some directors, as well as members of the executive committee, including Yocam, Campbell, and Jay Elliot, vice president for human resources. Though one director told him that the board was behind Sculley -- and that the chairman should stop being childish -- Jobs apparently thought he had a good chance to topple the chief executive. On Thursday, May 23, Jobs told his aides that Sculley wanted him out. The response was gratifying: they urged him to fight back and proposed calling the directors individually to win them over to the chairman's side. Sculley got wind of the plot almost instantly. At a 9 A.M. meeting of the executive committee the following day, attended by Jobs, the chief executive laid bare Jobs's machinations. Sculley firmly stated that he was the one who was running Apple. In a tense roundtable discussion that lasted three hours, the committee tried to find some future role for Jobs and failed. Reportedly, Jobs maintained unusual self-control during the ordeal, while Yocam and Campbell found it excruciating since they felt unable to speak in support of either Jobs or Sculley. At last, Jobs volunteered to take a long-planned vacation and to return after the reorganization was complete. After his meeting with Sculley, he called his own top executives together. At 1:07 P.M., says one who noted the time, he tearfully declared that he was resigning from Apple. As he headed for the door, Barnes, also crying, rose to restrain him, and so did Coleman. Murray pleaded with Jobs not to go, saying that if he did, his life, the lives of his staff, and the history of Apple would be changed irrevocably. Belleville resigned immediately. Eventually, Jobs's aides convinced him that he still had a future at Apple. Over Memorial Day weekend, Jobs had a long talk with Sculley and again tried -- in vain -- to retain some sort of operating job at Apple. That Monday night, Jobs held a dinner at his large stucco house in Woodside for Barnes, Belleville, Coleman, Murray, and board member A. C. ''Mike'' Markkula Jr., a former Apple president who owns 9% of the stock. Though the talk centered on Apple's business problems, Jobs seemed to be trying to sway Markkula and through him the board. Markkula, eschewing the whole-wheat pizzas being served, nibbled on some cherries. He said little, other than telling the Mac executives that the board would soon carry out a reorganization. For Jobs, though, time had run out. The next night, sources close to Jobs say, he learned by phone from Sculley that the company's reorganization plans included absolutely no operating role for the chairman. Sculley and his staff -- Jobs didn't show -- carved the new Apple in two marathon meetings on May 29 and 30. The structure, announced May 31, is almost entirely functional: Yocam runs all of Apple's engineering, manufacturing, and distribution. Gassee, who reports to Yocam, is in charge of product development. Campbell is responsible for U.S. marketing and sales. Two weeks later, Apple announced that it would permanently close three of its six factories by September and would terminate 1,200 full-time employees, including part of the field sales staff only recently hired and trained. Most security analysts estimate the company will show a pretax loss of $30 million ( for the quarter that ended in June and post per-share earnings for fiscal 1985, which ends on September 30, of 70 cents, vs. $1.05 last year. Even Jobs's strongest supporters consider the new setup a plus for Apple. The company has a chance to present one face to dealers and customers. That should help especially with business prospects, who have been put off by the turmoil and the conflicting messages from rival product divisions. Apple is following several promising paths that Jobs opposed. The great strength of the original Apple II as well as the IBM PC is that they attracted swarms of outside suppliers whose specialized add-on hardware and software vastly expanded the markets for those machines. Yet Jobs, believing that the personal computer should become as simple to use as a telephone, loaded the Mac with special software that makes it a daunting task for programmers to write new software. The Mac division had also insisted that the new machine, unlike the Apple II and IBM PC, have no slots into which outside manufacturers could slide printed circuit boards for, say, expanding the computer's memory or adding a superfast mathematical processor. In late June, during his first public appearance since the reorganization, Sculley declared that Apple would make every effort to open up the Mac to third-party hardware and software companies. Sculley also plans to set up a group to deal with other computer companies known to be interested in using Macs as terminals for their mainframes. These manufacturers have hitherto met a confused reception at Apple, as well as occasional derision from Jobs. One way to make Mac more appealing to businesses is to fill out the product line with equipment they want -- such as large disk drives -- and with more powerful versions of the machine itself. Gassee is closemouthed about his plans, but by year-end Apple should be shipping devices that enable different Macs to share the same corporate data and programs. By next year the company will probably unveil a Mac with vastly expanded memory and the ability to accept a broader range of peripheral gear. The other requisite for putting Macs into businesses is effective distribution. Earlier this year, partly to calm the ire of dealers, Apple throttled back its efforts to sell directly to corporations. Now Campbell is trying to help Apple dealers compete with the direct sales forces of IBM and other rivals by inundating them with technical training. He also hopes to sell , Macs jointly with mainframe companies that want to hawk the machine as part of their own computer systems. APPLE IS in little danger of becoming another corpse in the personal computer wars. Though earnings are melting, the company sits on an estimated $190 million in cash and has no long-term debt. In the aftermath of Jobs's defeat, however, the company is fragile in human terms; it's quivering with threats and rumors of resignations by employees who are still loyal to the chairman. What Apple must do is hold together and carry out the latest product and marketing plans. To remain a strong contender in the long run, the company will also need the kinds of breakthrough products to which Jobs is devoted. Though Apple hopes to retain Jobs, it's unclear whether he will stay on. In recent weeks he has seemed content to perform ambassadorial roles -- promoting the Macintosh in French universities and jetting to the Soviet Union to check out opportunities for selling computers. But Jobs has also talked of selling his stock -- recently worth about $120 million -- to endow a new R&D outfit that he would head. If he does leave, the company will lose a champion of innovation, a foe of bureaucracy, and a priceless proselytizer to the rest of the world. BOX: INVESTOR'S SNAPSHOT APPLE COMPUTER SALES (LATEST FOUR QUARTERS) $2.0 BILLION CHANGE FROM YEAR EARLIER UP 76% NET PROFIT $105.2 MILLION CHANGE UP 138% RETURN ON COMMON STOCKHOLDERS' EQUITY 20% FIVE-YEAR AVERAGE 25% RECENT SHARE PRICE $17.50 PRICE/EARNINGS MULTIPLE 11 TOTAL RETURN TO INVESTORS (12 MONTHS TO 7/5) -29% PRINCIPAL MARKET OTC Explanatory notes: page 112