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Apple eyes Palm but project on hold

Apple continues to ponder coming out with multicolored Palm handhelds under its own name, although the project has been put on the back burner to ensure that its new consumer portable gets out the door.

Apple continues to ponder coming out with multicolored Palm handhelds under its own name, although the project has been put on the back burner to ensure that its new consumer portable gets out the door.

Prototypes of a handheld organizer, which use 3Com's Palm operating system, have been spotted around the company's Cupertino, California, headquarters, said sources close to the company. Like the iMac, the Palm-based devices, if released, would come in a variety of colors and be marketed under the Apple brand.

For 3Com, the deal has precedent: Palm Computing makes an organizer that has IBM's name on it. For Apple, the move signals an ongoing interest in a market it pioneered, then abandoned in 1997 with the cancellation of the Newton handheld computer. Because the development is largely controlled by Palm, a Palm licensing strategy presents far less risk for Apple.

Despite interest, however, plans for the device are now being put on temporary hold so the company can focus on resolving design issues with the new portables and the next generation of iMacs, according to industry sources. Although a 1999 release seemed a possibility at one point, any such device is not likely going to show up on the market until next year, if ever, sources said.

A 3Com representative said the company doesn't talk about unannounced products, plans, or partnerships. Apple could not be reached for comment.

Speculation about a Palm-based handheld from Apple has circulated for months, fueled by comments from Apple executives that the company once had discussions with 3Com about buying Palm Computing and was still interested in the handheld device space.

"Steve [Jobs] never ruled out handhelds. He ruled out the Newton. People think he walked away from whole concept, but Apple is interested in anything mobile, and anything that connects to the Net," said Tim Bajarin, president of consulting firm Creative Strategies. (See related story) "However, I don't believe there's any serious commitment to a handheld strategy, as of today."

What Apple is committed to doing is getting its consumer notebook out the door on time. Why? The device, aside from rounding out the company's product offerings, could provide a significant boost for the company in its core education market, where colleges and universities are home to growing numbers of notebook-toting students.

Issues with P1
Apple has encountered issues with the development of its lightweight consumer notebook referred to as P1, sources said. These problems may have contributed to the departure of Mark Foster, Apple's head of notebook design, last week.

The issue is related to designing specialized chips for what is being referred to as a "common motherboard" design, according to sources. A motherboard is the main circuit board that holds the electronic guts of a computer. Apple's intention is to eventually have one basic motherboard design that can be used in a variety of products so as to reduce the time needed to design new products as well as manufacturing costs. See related story. Because of the snags, resources are being taken off lower priority projects like the handheld organizer and shifted to the consumer portable, several sources stated.

Apple is still expected to give a first look at the P1 portable at the Macworld Expo trade show, which starts July 21, according to many observers. The new notebook, which will also come in colors and contain a 10-inch screen or larger, may be marketed as the "iBook," according to one source. It is not yet clear when the notebook would be available for sale.

"While delays on new products are not uncommon, we believe that the consumer portable is on track for a July 21 unveiling at Macworld Expo in New York and that the product will ship before the end of Apple's September quarter," wrote Richard Gardner, an analyst with Salomon Smith Barney, in a report issued to clients today. Gardner's comments were echoed by others on Wall Street.

"If you are designing a whole new form factor, some delays are inevitable, but my understanding is that prototypes exist," said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison told Reuters. "If they exist they should be able to get the bugs ironed out," he opined. Mazzucchelli said he expects the device should be available in time for at least a part of the all important back-to-school season.

Analysts say that Apple continues to maintain its focus on developing products that will generate significant revenue--something which handhelds won't do for the company. "I think Apple won't let [other projects] derail them from their first task, which is getting this consumer portable out the door," said Bajarin.

Apple working on next-gen iMac, too
Meanwhile, the company is also readying a new generation of iMacs for release in the fall.

These new machines are expected to continue the iMac design tradition, but will be revised to allow for easier access to the computer's innards, like the newest versions of the Power Mac G3 systems have, sources said. The system is expected to provide other new features such as a larger screen. A new generation of desktops would also fit in with Apple's commitment to refresh the product line annually--the iMac hit the store shelves in August of 1998.

Here too, the focus on the P1 may impact the introduction of a new product. Sources say the next generation iMac, code-named C2, is not likely going to make an appearance at Macworld Expo now because of the extra work needed on the consumer portable.

"The project has been rescheduled for a late autumn release and should be in excellent supply come the holiday shopping season, hopefully. Prototype units will begin to be seeded in September," meaning sales of the new iMacs would commence in earnest before the Christmas selling season, according one source close to Apple. It is unclear whether or not there will be a significant delay in the shipment of C2, however. Another source still expects Apple to have C2 iMacs available for sale in August or September.

Salomon's Gardner writes that even if reports of delays in next-generation iMacs turn out to be true, the impact on Apple's share price and earnings is not likely to be a large one. He reiterated his "buy" stance on Apple, citing a target price of $55 per share.

Apple closed the day up 6.61 percent at 45.375, a move attributable in part due to Gardner's positive stance on P1 availability.