Apple Computer Inc. to Buy Key Assets of Mac Clone Maker.(Originated from The Boston Globe)

Knight Ridder/Tribune Business News

September 3, 1997 | Bray, Hiawatha

Sep. 3--Steve Jobs to Macintosh clone makers: Drop dead.

Well, not exactly. But in a bold effort to retain its dwindling share of the personal computer market, Apple Computer Inc. said yesterday it would purchase the core assets of Power Computing Corp., the leading maker of clone computers that run Apple's Macintosh operating system.

Apple also said it would stop sharing its newest hardware and software technologies with other clone makers unless they could settle on new licensing agreements that would protect Apple's share of the Macintosh market. If the dispute is not resolved, users of Mac clones will be denied future product enhancements -- a prospect that could cause customers to stop buying them.

Yesterday's announcements show the depth of Apple's unhappiness with the consequences of its decision to let other computer firms build machines with the Macintosh operating system. Originally conceived as a way to increase the overall number of Mac users, the policy has instead caused traditional Apple buyers to switch to clone machines. The new management team at Apple, led by cofounder Jobs, now believes the clone makers threaten Apple's survival.

The new line on cloning is the second major policy reversal at Apple since chief executive Gilbert Amelio was ousted in July and Jobs once again moved to assert control. Last month, at MacWorld Expo in Boston, Jobs shocked the computer industry by announcing an alliance with Apple's main operating-systems rival, Microsoft Corp.

Under the Power Computing deal, Apple will pay $100 million in stock to buy back Power's license to make Macintosh clone machines. Apple will also acquire a list of about 200,000 Power customers and key Power personnel who helped run the company's engineering and direct-marketing operations. Apple will not purchase Power's manufacturing facilities or the company's name. Power still plans to introduce a line of computers based on Intel Pentium processors and running Microsoft's Windows 95 and NT operating systems, which dominate the desktop market.

Rather than selling through retail stores, Power specialized in selling by mail, telephone, and the Internet. Apple plans to capitalize on Power's expertise to expand its own direct-marketing operations.

"We look forward to learning from their experience, and welcoming their customers back into the Apple family," said Jobs.

Rumors of an Apple acquisition of Power had been circulating since MacWorld Expo. Apple's refusal to license future technologies illustrates how bitter the controversy over Macintosh cloning has become.

Apple began licensing the Mac operating system to other computer makers in 1994. The company had hoped the clone makers would focus on the lower end of the market, while Apple would sell more expensive and more profitable machines to high-end users.

It didn't work that way. Power soon began to focus on building the fastest, most advanced Macs on the market, and advertised the technical superiority of its computers over Apple. Instead of expanding the popularity of the Macintosh system, Power mainly picked up former Apple customers, thus costing Apple millions in lost revenues.

In addition, the Mac licensees only had to pay $50 to Apple for each Mac clone sold. This deal was worked out under former Apple chief executive Michael Spindler, in a desperate effort to expand the Mac market.

Now Apple is saying it will honor existing licenses but will not extend them to cover new technologies unless the terms can be substantially changed. "If we could have a licensing program that truly expanded the platform," said Apple chief financial officer Fred Anderson, "then we would have a positive attitude toward licensing." But Anderson said there are no negotiations at present with other Mac clone companies.

However, one of the cloners, the Taiwanese firm Umax Computer Corp., said yesterday it was scheduled to hold talks with Apple tomorrow. Umax spokesman Phil Pompa said his firm has invested "hundreds of millions of dollars" in its line of Mac clone computers and hopes to find a way to keep working with Apple. One possibility, Pompa said, would be an agreement that Umax would focus on selling Mac clones in Asia, leaving Apple's core markets in the United States untouched.

However, some industry experts think Apple is determined to kill cloning entirely. "The essence of the deal is that Apple does not believe there is room in the market for anyone but Apple," said Chris LeTocq, software analyst for Dataquest Inc.

Kevin Hause, an analyst for International Data Corp., noted the clone makers brought improved Macintosh technology to market more quickly than Apple did. If Apple squeezes the clone makers out, Mac users will have to wait longer for innovations and can expect higher prices as well.

Apple's stock gained 5-8 to close at 22 3-8 on Nasdaq yesterday.