Apple-Power Computing deal may signal the end of Mac clones

Apple Computer's acquisition of the Macintosh assets of clone-maker Power Computing has stirred mixed reactions in the industry, ranging from delight to disgust. While some analysts believe the move is a good deal for Apple, others say it eliminates choice and calls into question Apple's sincerity as a business partner. And while Motorola Computer Group is refusing to comment on the deal, another Macintosh clone-maker, Umax, says it will now be able to more easily resolve pending licensing negotiations with Apple.

Apple Computer's acquisition of the Macintosh assets of clone-maker Power Computing has stirred mixed reactions in the industry, ranging from delight to disgust.

While some analysts believe the move is a good deal for Apple, others say it eliminates choice and calls into question Apple's sincerity as a business partner.

As users reacted favorably to the deal, another Macintosh clone-maker says it will now be able to more easily resolve pending licensing negotiations with Apple.

At the same time Apple confirmed that it will not extend existing licensing agreements - which cover systems that are Mac clones - to system designs based on the CHRP (Common Hardware Reference Platform) specifications. Meanwhile Power Computing has said it will pull its planned initial public offering and focus entirely on the Intel-based PC market.

In explaining its move today Apple officials said the most important asset it acquired from Power Computing was the company's customer database, which includes the names of about 200,000 users, said Fred Anderson, Apple's CFO.

"We expect a significant number of Power's customers will return to Apple," Anderson said.

He added that according to security filings Power Computing expected to generate about US$400 million in revenue annually prior to being bought out by Apple. Some of that cash will now flow to Apple, Anderson said.

Anderson also said Apple will be able to tap Power Computing's management for its expertise in direct sales operations in an effort to create a broader mix of sales channels at Apple.

But one analyst is doubtful Apple will profit as much from Power Computing's customer base as the company expects.

"It's bad move for the Macintosh market," says James Staten, analyst with Dataquest in San Jose. "It may allow Apple to return to profitability faster, but users want choice and with this they are getting less choice and some will leave the platform."

Apple will probably gain back less than 60% of the customers it lost to clone makers, Staten says.

But long-time Apple watcher Pieter Hartsook, publisher of the Hartsook Letter, says Apple's moves were nothing but good news.

While Apple gains Power Computing's innovative technology and its direct sales channel, Power Computing will be able to concentrate on the development of Windows-Intel based systems, he says.

"Macintosh customers will gain in the long term, by getting access to Power Computing's innovative technology, which will be more widely disseminated in the Mac market," Hartsook says.

Among those innovations are Power's hybrid Nubus/PCI bus and inline cache technologies, Hartsook says.

Apple will also be able to broaden its sales channels.

"I don't think Apple will get rid of its reseller sales channel but it will allow Apple to quickly establish a direct sales channel," Hartsook says.

While the implications of today's move for the remaining Macintosh clone makers are unclear, DataQuest's Staten says Apple's inconsistent stand on licensing agreements are cause for concern.

"It is a much riskier proposition to make deals with Apple," Staten says.

Officials at clone-maker Motorola did not return phone calls.

For Mac clone-maker Umax Computer Corp. of Fremont California, Apple's move today not only eliminated a competitor, it will also allow the company to finish licensing negotiations with Apple, that are scheduled to resume this week.

"It's one thorn less in Apple's side," says Bruce Berkhoff, director of product marketing at Umax. "It will make things a lot easier. Plus Umax's situation is entirely different than Power Computing."

Umax gains three quarters of its sales through indirect channels, and makes half it its sales in international markets, while 50% of its systems are targeted at the low-end market below $1,000, Berkhoff says. Taken together Umax is contributing to the overall growth of the market, a requirement critical to Apple in its licensing strategy, Berkhoff says.

Anderson said Apple will honor existing licensing agreements with clone-makers, but will not extend them to include CHRP -based products, or its popular PowerBook notebook design.

Essentially putting an end to the clone market, Anderson said Apple's clone strategy has to be geared towards increasing shareholder value as well as contributing to the growth of the Macintosh market, something that has not happened as a result of existing agreements.

However, Apple remains open to discussing agreements designed to grow the Macintosh market overall, Anderson said. Such agreements would cover certain geographical markets, for example.

"Apple doesn't have the resources to develop every market around the world and if a clone-maker would want to expand in a particular market we would be open for discussions," Anderson said. He added that markets in the Far East would fall into that category.

Power Computing meanwhile has cancelled its planned initial public offering and will concentrate on developing Intel-based PCs. It is planning to roll out its first Windows and Intel-based notebooks this coming Monday, with desktop machines to follow later in the year, officials said.

Analysts say Power Computing's future is bleak since the company has no capital to build a presence in the highly competitive Wintel-PC market.

"Power Computing agreed not to go after the customers it sold to Apple for five years," Staten says. "It is going to be tough to make it in the PC market."

Meanwhile some Macintosh users welcomed the move as it provided some good news concerning Apple after months of depressing news.

"The easy thing for Apple would have been to buy back Power Computing's license and do away with them," says Hal Gibson. executive director of the Berkeley Macintosh User Group, of Berkeley, California, with 12,000 members the largest Mac user group in the U.S. "With this Apple is actually saying 'we are interested in some of your resources'," Gibson says.

He says Apple will benefit from Power Computing's direct sales channel. "It shows that there is something to be learned about putting the machines together and getting them to market."

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