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With Stringer's support, Schaaff has managed to break down silos and persuade rival factions to cooperate

Sony Chief Executive Howard Stringer bristles every time he gets the question: Why can't the Japanese electronics giant be more like Apple? The maker of the iPod, iPhone, and Mac computers consistently delivers supercool gadgets that are easy to use, while Sony sells music players, TVs, and cameras that get mixed reviews and often don't even work well with other Sony (SNE) products. "Sony is a very big company," Stringer says by way of explanation. "Our toughest competitors are niche organizations."

Stringer is quick to admit, though, that Sony may face a troubled future if it can't rival Apple (AAPL) in creating simple software that makes its gadgets fun and in giving consumers easy access to music and videos. Apple's iTunes store has long made filling iPods a cinch, but Sony's consumer electronics and PlayStation divisions have only recently started to integrate their offerings with those of the company's movie studio and music label. That's one likely reason why Sony's products earn profit margins of 10% or so, compared with the 30% margins that Apple's devices command.

So Stringer went straight to the source. Three years ago, he hired Tim Schaaff, a top lieutenant of Apple CEO Steve Jobs, and created the title of senior vice-president for software development for him. Although Schaaff was expected to spend most of his time in California, he's so integral to Stringer's plan to remake Sony that he has a direct reporting line to the CEO. Schaaff's role has grown quickly, and today he also has a hand in product design, licensing, planning, and engineering. "When we brought Tim on board, it was a recognition that we needed someone whose experience crosses multiple borders," Stringer says.

A KNACK FOR KILLER PRODUCTS

Schaaff doesn't come across as an agent of change. The 48-year-old Dartmouth grad studiously avoids the press. When he speaks, he does so slowly and deliberately, giving the impression that he is reading from index cards inside his head. But at Apple, Schaaff showed a knack for translating geeky ideas into killer products. The self-taught software engineer oversaw development of Apple's QuickTime video-streaming format, which serves as the foundation of iTunes, the iPod, and the iPhone.

Stringer is clearly hoping Schaaff can seed Sony with Apple's Silicon Valley entrepreneurial culture. When the Welsh-born Stringer became Sony's first non-Japanese CEO in early 2005, he pledged to make the company "cool again." While Schaaff has made important strides toward that goal, Sony clearly needs to inject some zing into its products. On Oct. 29 the company said net earnings for the quarter ended Sept. 30 were off by 72% from the year-earlier period. The report came on the heels of a warning that profits for the year would fall by more than half, due to the strengthening yen and lackluster sales of TVs and digital cameras.

It was more evidence that after a three-year makeover, Sony is still struggling to get its groove back. Now, as consumers rein in spending, they're even less likely to buy the expensive gizmos Sony plans to unveil over the coming months. That would be a major setback for "Sony United," Stringer's program to turn the company's fractured family of products and services into a model of integration. The goal is to sell Bravia televisions that connect to the Web and download the latest Spider-Man movie, Walkman phones that offer tunes from Sony artists such as Beyoncé, and e-book devices that ask if you want to purchase that new John Grisham thriller.

Stringer has given Schaaff unprecedented freedom to conquer resistance and boost cooperation among Sony's myriad—and often warring—units. Schaaff has also served as something akin to secretary of state, working with other companies to help make Sony products more appealing.

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Amid the roiling waters of the stock market and economy, which have tossed tech investors around for weeks, Apple Chief Executive Steve Jobs made a special guest appearance on Apple's fourth-quarter earnings call Oct. 21 to try to calm things down.

Profits soared (BusinessWeek.com, 10/21/08) on knockout iPhone numbers and strong Mac and iPod sales. But Jobs wanted to make a point broader than any one quarter's results: Apple planned to seize the opportunity of these difficult times to bolt ahead of the competition. He pointed out that Apple (AAPL) has nearly $25 billion in the bank. The economy could present "some extraordinary opportunities for companies that have the cash to take advantage of them," Jobs said. "We may get buffeted by the waves a bit, but we'll be fine—and stronger than ever when the waters calm in the future."

These are difficult times for all companies. But some are figuring out how to thrive amid the turmoil. BusinessWeek's annual Tech Hot Growth ranking shows the sector's top 75 performers over the past year. Some have done well because they help their customers cut costs—witness IBM (IBM), Accenture (ACN), and software maker VMware (VMW). Others made the cut because they help customers generate more revenue in good times or bad. Google (GOOG), for example, reported a surprisingly strong quarter (BusinessWeek.com, 10/17/08) on Oct. 16, because companies that get sales from online advertising kept on spending. It also doesn't hurt to sell to the government, whose buying tends to be somewhat insulated from the broader economy. That factor propelled infrared technology supplier Flir Systems (FLIR) and defense suppliers Mantech International (MANT), Harris (HRS), and SAIC (SAI) into prime spots on this year's scoreboard.

Gilead Sciences at No. 1

The ranking is based on a number of metrics. Revenue growth counts the most, although total revenues, shareholder return, and return on equity all factor in, too. The ranking is based on the most recent four quarters available, as of Oct. 15.

Gilead Sciences (GILD), the top-performing company on the list, booked big gains in profits and return on equity through sales of its drugs to treat AIDS, hypertension, hepatitis B, and other diseases. It has capitalized on the success of its most recently approved HIV drug, Atripla, and its 2006 acquisition of pharmaceutical company Raylo Chemicals.

At the fastest-growing information technology companies, it's clear you need to take a different attitude in downturns than in normal times. You must focus on why you're going to stand out from your competition and why your customers will need you more than they need your rivals. You have to think aggressively—as Jobs is doing—rather than defensively, in retreat. "Selling more of the same doesn't work," says John S. Chen, CEO of Sybase (SY), which provides database software used widely on Wall Street and which ranked No. 34 on this year's list. Because Sybase customers Bear Stearns, Lehman Brothers, and Merrill Lynch (MER) have disappeared, Chen is concentrating on helping the finance industry's consolidators, including Barclays (BCS) and Bank of America (BAC), find new ways to reduce operating costs. "I'm desperately creating a lot more new functionality," he says.

So far, so good. On Oct. 21, Sybase reported that third-quarter sales rose 11% to $284 million, and profits rose 2%. Sybase's profits were up more than 77% during the 12 months ended in June, according to BusinessWeek's analysis.

Stock Woes For All

Tech companies are scrambling for advantage in these lean times. Intel (INTC) is one of several catering to budget-minded shoppers. The chipmaker is ramping up production of processors for a new class of small portable notebooks that cost as little as $300 to $400. Oracle (ORCL) has spent $34 billion on 50 acquisitions over the last 44 months and plans to shop for additional bargain buys in order to generate recurring product-support revenues, which roll in during good times and bad. And in the past five weeks, Microsoft, Hewlett-Packard, and Oracle have announced plans to buy back billions of dollars of their own shares.

Still, it's been a rocky road for the stocks of even the best-performing companies. The average share-price return for the 75 companies on the scoreboard was -37%, and the top 10 on the list generated an average return of -22%. Dell (DELL), which posted big gains in profitability and return on equity by cutting costs and revamping its products and distribution strategy, has warned of a tougher environment ahead. And investors worry that the down economy may erode prices for such premium brands as Apple and Salesforce.com (CRM).

"We'll be prudent," says Robbie Bach, president of Microsoft's $8 billion Entertainment & Devices Division, which makes the company's Xbox game console and Zune music player. Microsoft hopes consumers buy more Xboxes as they resort to stay-at-home entertainment instead of going out. But Bach doesn't think consumers' holiday spending will accelerate until after the Presidential election. "At this time of year, we're talking to our retail partners every day," he says.

From a product point of view, Apple CEO Steve Jobs usually goes bold. But when it comes to running the company's numbers, he rarely goes out on a limb. That was made plain Oct. 14, when Jobs announced a new laptop lineup. Despite rumors he'd introduce a laptop for $800 or less that might have helped Apple (AAPL) gain market share at the expense of margins, the company held prices close to where they've always been.

The company trimmed the price of the basic MacBook by $100, to $999. It also introduced a new midlevel MacBook with many of the features of the MacBook Pro starting at $1,300—the same as the old mid-range MacBook—and a version of the swankier MacBook Pro for $2,000, the same as its predecessor.

No doubt, there's more Mac for the money. All of the new devices feature an instant-on, backlit LED screen and faster graphics, courtesy of a chip from NVIDIA (NVDA), while the $1,300 and $2,000 models are packaged in a beautiful new aluminum shell that's thinner than ever.

Why Trim Margins?

But many Wall Street analysts thought Apple would use the product introductions to steal a large chunk of market share. After all, the company has grown two to three times faster than the PC market over the past four years, thanks in part to a successful "I'm a Mac" ad campaign and disappointing demand for Microsoft's (MSFT) competing Vista operating system. Apple even said it would sacrifice some margin (BusinessWeek.com, 7/21/08) during the quarter that includes the yearend holidays. While Apple has enjoyed this success by focusing on customers willing to spend for a higher-end machine, BMO Capital Markets analyst Keith Bachman figured that an $800 MacBook would help Apple compete for 62% of the laptop market, vs. 51% of the market with a low price of $999.

But giving in to the margin-grab temptation would have been risky to Apple's long-term health, says Stephen Baker, an analyst at NPD Group. A slew of PC companies over the years (Packard Bell and eMachines, anyone?) became money-losing businesses by slashing prices too far. Gross margins narrowed not only as a result of lower prices but because price-conscious shoppers with less tech acumen make more support calls. As a result, any profits on the initial sale frequently disappeared amid rising customer service costs.

Apple can keep on rankling rivals without overdoing it on price cuts. The company's share of the U.S. retail PC business is now 18% by units and 31% by sales, Apple Chief Operating Officer Tim Cook said at the Oct. 14 product introduction. He noted that Apple has sold as many Macs in the past three quarters as it did all of last year.

Apple also has little reason to move on prices, given a relative lack of new technologies or features from PC makers this Christmas. Baker figures most people who want to try out a Mac already have decided to do so. As a result, a big price cut would needlessly eat into Apple's revenue. "People come into Apple stores expecting to pay a certain amount," he says. "There's no evidence that customers are particularly asking for a $799 Mac. But if you offered it to them, many of them would make that choice…One of the reasons Apple does so well at selling $1,000 computers is that they don't give you the choice of a $799 model."

Consumers Still Pony Up for Electronics

Of course, the reluctance to cut prices too far could alienate customers looking for a bargain amid economic turmoil. Fears of Apple's exposure to a big downdraft in consumer spending sent Apple shares down 5.6%, to 104, on Oct. 14. "People say Apple is fortunate to sell to more sophisticated customers, not Joe Six-Pack," says Roger Kay, founder of Endpoint Technologies Associates. "But a lot of those sophisticated customers were supporting their spending with credit last year. Some of those folks that want to put the fancy Apple decal on their fancy car won't have the cash for a new Mac this year. They may settle for something cheaper."

But so far, there's little evidence to suggest that U.S. consumers are getting thrifty when it comes to consumer electronics, says Baker of NPD. Three of the best-selling categories—digital SLR cameras, LCD televisions, and laptops—are "also among the most expensive products you can buy," he notes. "And sales of all three have continued to grow throughout 2008." Jobs hopes the trend continues well into the new year.

When they're not hand-wringing over the recent drop in Apple's share price, Mac enthusiasts have been transfixed lately by the mystery product, code-named "brick," that's due for release later this month.

Some bloggers and pundits have suggested it might be a new iteration of Apple TV or an updated Mac Mini. But according to a report on 9to5Mac.com, "brick" refers not to what it is, but how it's made. The Web site, which cites an anonymous source, says the code name has to do with a manufacturing process for Apple's MacBook and MacBook Pro lines of laptops. Apple (AAPL) will build the notebook out of a single piece of carved-out aluminum—a brick.

Whatever it signifies, the new computer may be precisely what Apple Chief Financial Officer Peter Oppenheimer meant when he referred to a "new product transition that I can't talk about yet" during Apple's most recent earnings conference call in July. The transition is among the reasons Apple said it expects to make lower gross profit margins (BusinessWeek.com, 7/22/08) during the next several quarters.

But if the new product does prove to be a notebook made from a block of aluminum, how much pressure are Apple's margins likely to undergo? More to the point, would Apple's brick be a brick?

Savings on Materials and Labor

A radically different production method might well boost costs, at least at the outset. But there could also be savings from the change, says Kevin Keller, an analyst at market research firm iSuppli. "If you're working with one single unit of metal, you're reducing a lot of the materials costs and also a lot of labor time on assembly," he says.

Using a single piece of metal would also provide the opportunity for the kind of design flourishes that distinguish Apple and its chief executive, Steve Jobs. Screws might be minimized or eliminated entirely. Seams joining different pieces of metal would disappear. In short, these notebooks would be unlike anything else on the market in appearance and design.

Apple has been known to push the envelope on notebook design over the years. Its metallic MacBook Pros have inherited a distinctive look and feel that dates to 2001 when Apple launched its PowerBook G4 product line. Since then, there has always been a metal notebook, sometimes boasting a titanium shell, sometimes one of aluminum.

But coring out a block of aluminum, while fairly common in some products, such as types of wireless telecom gear, is a slow process, Keller says. "The issue for Apple, which would presumably be doing it millions of times, would be speed," he says. "It's very time-intensive." Presumably, Apple could bring innovation aimed at streamlining the manufacturing process, he adds.

Patent Filings

Apple declined to comment on its plans, but the company has made patent filings related to the design of notebook enclosures. In May 2007, it filed for a patent on a design for "enclosure parts that are structurally bonded together to form a singular composite structure.… That is particularly useful in portable computing devices such as laptop computers."

Another important factor in the success of these new laptops is where they would be made. 9to5Mac's informant suggests that Apple might bring final assembly of the product in-house. In a world where notebook PCs are made almost exclusively by third-party manufacturers because of labor costs, the thought of Apple getting back into the business of manufacturing notebooks would send shivers up the spine of any shareholder. "I'd be shocked if they started doing any of their own assembly," says Andy Hargreaves of Pacific Crest Securities in Portland, Ore. "That's the kind of drastic step that would hurt profits. I'm just not sure what the advantages would be."

Then there's the expense of setting up a factory, purchasing the equipment, securing the real estate, and hiring the labor. None of this could be done on the cheap, though Apple at last count had nearly $21 billion in cash and could easily absorb the expenditure. Apple owns a 305,000-square-foot manufacturing space in Cork, Ireland, that also houses a customer-support call center. It also owns an 805,000-square-foot warehouse and distribution center in Sacramento. Building and ramping up a factory is an enormous project that takes a lot of time and a considerable effort around logistics. Parts have to be shipped in, and finished products have to be shipped out.

Buying Real Estate

There's no evidence Apple has undertaken the construction of a new facility, though in recent years it has been purchasing real estate near its headquarters in Cupertino, Calif., for a second corporate campus. On the off chance Apple wants to do some of its own manufacturing, the company would most likely be considering a site in China. "If they're doing this at all, there is no doubt in my mind that it would have to happen in Asia," Keller says.

Apple stock rose 1.07, to 98.14, on Oct. 6, though it has been hammered in recent months on concerns that the economic slowdown and financial market crisis gripping Wall Street will crimp demand for its products. Whatever form its brick takes, Apple will want to ensure that it can be manufactured as efficiently as possible—and hold plenty of appeal for consumers.

Hesseldahl is a reporter for BusinessWeek.com.