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People: EXECUTIVE SUITE
MICRON'S COMEBACK KID
CEO Steve Appleton was fired and rehired-all in nine days. Here's the inside story of his rise and fall and rise
Steven R. Appleton doesn't let much get in his way. As a kid, he refused to go to the doctor about a stomach pain--then almost died because his appendix had burst. A nationally ranked tennis player at Boise State University, he learned to play left-handed after breaking his right wrist. And as a 22-year-old factory worker on the graveyard shift at Micron Technology Inc., he swore he would be a corporate executive of the Boise-based chipmaker by age 30. Working relentlessly--he hasn't taken a sick day in 14 years--Appleton made it and then some: He became CEO in 1994 at age 34.
So how did this hard driver react when Micron's board unceremoniously axed him in January? He went to his folks' Los Angeles home, began growing a goatee, and phoned pal Gregory E. Herrick to plan a biplane trip around Australia. "He sounded matter-of-fact when he called. I think I was more shocked than he was," says Herrick.
"I move pretty fast, and I'm not emotional about anything," Appleton shrugs. "I love Micron, but there's lots of things I love." Moreover, Micron's board long ago established who calls the shots. Since 1988, this group of Idaho agribusiness tycoons has chased out six top executives--including co-founder Joseph L. Parkinson, who handed the reins to Appleton in September, 1994, after a blowout with billionaire potato baron J.R. Simplot, who owns 22% of Micron.
The board's high-handed ways have long dominated the company. Many managers hesitate to sell stock, for example, for fear directors will think them disloyal. Simplot, an eternal optimist, has held on to his shares and frowns on insider sales. Also, Micron hasn't issued shares to finance the staggering cost of chip plants since 1988--it would dilute Simplot's fortune, and he controls the board. "Hey, it's my baby. I put the gamble money in," says Simplot, 87, who invested $1 million in the early 1980s.
Maybe so, but when the board rehired Appleton eight days after firing him, it was a big win for the managers. Employees revere Appleton for his work ethic, enthusiasm, and willingness to hear all sides of an issue. As a line manager, some recall, he once mediated a worker's complaint about a harsh boss by interviewing all 22 workers on the shift, then moving the supervisor.
Appleton also singlehandedly pushed through an innovative pay plan. After devouring more than 20 books on compensation, he proposed giving workers a lower base pay than rival companies but 10% of profits. Thus, Micron's payroll drops in bad times--which limits layoffs--but folks make a killing in boom years such as 1995. "Usually, people hate a guy when he rises that high," says Vice-President of Corporate Affairs Kipp A. Bedard. "But they look at Steve as an operator who hit the jackpot."
TRUE GRIT. The CEO's return may even mark a lasting shift in the balance of power. While Micron has tried to dismiss January's to-ing and fro-ing as a spat between Appleton and Director Allen T. Noble, BUSINESS WEEK has learned that the split went far deeper. This time, management stood up to the board, demanding Appleton's return and an end to directors' meddling. When it was all over, Simplot told a roomful of teary managers: "We made a mistake. We corrected it. And now everything is going to be great."
It was the worst possible time for the $3 billion company to be distracted by a family feud. Rocked by a 50% drop in chip prices since Jan. 1, Micron has seen gross margins slip to 44% from 57% a year ago. The stock, at 943/8 in September, plunged below 30 in March. It has since climbed into the upper 30s, near where it was a year ago.
But it could drop again--particularly if memory prices fall further, analysts say. While Micron is still making money on older, 4-megabit chips, it lags in the 16-megabit chips that are becoming standard in PCs. Worse, it faces a money crunch when larger rivals are throwing unprecedented dollars at the $23 billion memory market. With cash down to $398 million in the February quarter from $607 million in the November quarter, Micron had to secure a $500 million line of credit in March.
Appleton's late-January decision to mothball a $2.5 billion plant in Lehi, Utah, could save up to $500 million this year. Long term, however, it could cost market share, since rivals in Japan and South Korea continue to build. Says CS First Boston analyst John M. Geraghty: "Does Micron have the critical mass to survive? Sure. Will they be as big a player in the future? It's not clear."
How did Micron wind up in an imbroglio at such a critical moment? It started with Parkinson's 1994 ouster. Noble, one of Micron's earliest investors, wanted the top spot to go to Chief Technology Officer Tyler A. Lowrey, another up-from-the-ranks whiz kid. It was Lowrey's knack for finding cheap ways to make chips that enabled Micron to survive and thrive. "You can look the world over before you find another one like Tyler," says Noble. But when Lowrey, 42, declined the post, it went to Appleton, who was running chipmaking operations.
Insiders say Noble, 66, wouldn't give up. Known for his iron will--he left home in seventh grade and supported himself for six years by milking cows--Noble repeatedly questioned Appleton's leadership and complained that he was unresponsive to board queries. Worse, insiders say, Noble began tinkering in operations, chewing out underperforming employees and repeatedly ordering a Cessna for Micron--only to have Appleton cancel the orders. At the same time, insiders say, he quietly urged Lowrey to pursue the top job. Noble denies these charges and calls talk of dissent over the plane "asinine."
Last fall, Noble made his move. After tempers flared at one of the board's Monday 6 a.m. meetings at Elmer's restaurant, Noble argued again that Lowrey should run the company. But Noble's timing was off. Micron's stock had screamed from the 20s to the 90s since Appleton had taken over (chart), and the company was cranking out $3 million a day in profits. Simplot rebuffed his friend of 40 years.
But Simplot was in for a surprise. On Jan. 17, Lowrey and executives including General Counsel W. Bryan Farney and Product Engineering Vice-President Edward J. Heitzeberg trooped into his office to ask that Lowrey be put in charge.
What prompted Lowrey's change of heart? He says he finally succumbed to the idea of taking over--and not just out of ego. By then, memory prices were sliding--and with them Micron's stock. Lowrey says he had been persuaded that Appleton's days were numbered, in part because Farney had told him Appleton planned a big stock sale. Lowrey, who feared an outsider would be brought in, told Noble, who used the information to turn the board against Appleton. "I thought I could do a better job than an outsider," says Lowrey.
SLEEPLESS IN BOISE. Faced with what seemed a broad mutiny, Simplot called a board meeting for the following morning. Appleton was asked to leave the room. When he returned, he was told he was out. "He took it like a real man," is all Simplot will say.
Within days, Lowrey had another change of heart. After quietly calling Appleton in L.A. to gauge his interest, Lowrey met with Simplot to ask that both he and Appleton be returned to their old jobs. Early on Jan. 25, they--along with CFO Wilbur G. Stover Jr.--broke the news to Noble. Later that day, a shaken Lowrey told colleagues he'd made the biggest mistake of his life. Recalls one: "He said, `I can't sleep, I was wrong, and I want to make things right."' Says Lowrey, who had lost eight pounds: "I was very fatigued. It just wasn't the best thing for Micron."
Over Noble's objections, Simplot told Lowrey to try to bring Appleton back. Tracked down in Washington State, Appleton agreed to hop a flight to Boise.
But before he arrived, turmoil erupted. The morning of Jan. 26, more than 20 executives gathered to discuss resigning if the old management order wasn't restored. "You can't imagine the number of people who said it was the first time they woke up and didn't want to come to work," says one. Either by chance or through a tip, Simplot and Thomas T. Nicholson, another board member, showed up--and listened. "They all wanted Steve back," says Simplot. "We'd have lost a bunch of 'em."
What's more, executives demanded that the board end its autocratic ways. "People were just tired of having the board do things that were counter to management's views, and of not being told about them until it was too late," says an executive. By the time Appleton arrived for a 5 p.m. board meeting, his leverage couldn't have been greater. He demanded an end to intrusions by the board--especially Noble. And he obtained sweetened severance packages to protect managers who had voiced their frustrations. Ten days later, Noble resigned his seat, citing family illnesses.
Now back in the driver's seat, Appleton has his work cut out. Micron faces two challenges: to step up production of 16-megabit chips and to pull off the tricky switch from making chips on 6-inch wafers of silicon to 8-inch wafers, which will greatly boost capacity. As the only "pure play" in memory chips, moreover, Micron remains most vulnerable to market gyrations. Richard L. Whittington, an analyst with Soundview Financial Group Inc., says memory prices could fall another 50% this year.
Appleton, who has gone through three vicious downturns, is undaunted. Micron, he notes, has always managed with its unique strategy--slashing costs while sticking with products longer than others, then jumping into new markets once rivals have ironed out the technical glitches. In addition, Lowrey has a new bit of cost-cutting wizardry to help Micron in the 16-megabit chip market.
For the long haul, Appleton wants to ease Micron's dependence on memory chips. The PC division, spun off into Micron Electronics Inc. in 1995, now contributes 30% of sales. Progress in other new businesses, such as small flat panel displays, has been slow, however.
Appleton has had other diversification ideas. Failing in a bid for NexGen Inc., Micron has had talks to buy Cyrix Corp., another maker of microprocessors that ape Intel's, sources say. Although Cyrix has been unable to snatch much of Intel's business by itself, Micron's manufacturing muscle could make the difference. Cyrix CEO Gerald D. Rogers denies that any merger talks have taken place.
If anybody can pull this off, it may be Appleton, a fanatical overachiever. When not pumping silicon, his high-adrenaline pursuits include triathlons, skydiving, and motorcycle racing. Tennis partner Langdon marvels at how he turned himself into a weight lifter able to bench-press 300 pounds. "You never see him when he isn't good at something," says Langdon. "He just goes away for a while and comes back good." Flying is Appleton's latest passion. He owns a single-engine Mooney and is buying a vintage A-37B Dragonfly fighter.
Appleton's capacity for work may be his most striking trait. He labored 16 hours a day, seven days a week for two years during a mid-1980s downturn, he says--an effort that contributed to his 1988 divorce. (He and a girlfriend have since had two daughters.) He sleeps just four hours a night, framing his day with 4 a.m. and 9 p.m. workouts in his gym. He credits his stamina to a diet that holds body fat to 5%.
Why so intense? Maybe it's his background. Growing up in Los Angeles, Appleton, whose mother taught school and father owned donut shops, was a diligent student who became drum major and salutatorian. But he ran with a rough crowd. "It was sticks in elementary school, knives in junior high, and guns in high school," recalls Appleton, who says he lost one pal to a shotgun blast and others to prison.
Tennis was a way out. Langdon says Appleton made himself a top high school player on sheer grit: "His ability to play big points is phenomenal." That drive got him a scholarship at Boise State--his path to Micron.
TIGHT PERCH. In Boise, Appleton has a permit to carry a concealed weapon. "I'm not overly paranoid," he says, "but you're so exposed in a place like Idaho."
Is he now safe in his job? With two adversaries gone--like Noble, Farney has resigned--it would seem so. But as one insider asks: "If you knew one guy got you kicked out and then got you brought back, would you feel in control?" Asked if he feels secure, Appleton hesitates, then finally says: "People don't understand that when you're CEO, keeping your spot may not be related to your performance."
Maybe not. But at least now he's less likely to lose it for no apparent reason.By Peter Burrows in Boise, IdahoReturn to top