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Mac clone notebooks still in limbo

Apple's strategy to rein in Macintosh clone manufacturers extends to entire product markets that Apple would prefer to keep to itself--most vitally, notebook computers.

BOSTON--Apple's (AAPL) strategy to rein in Macintosh clone Macworld saga manufacturers extends to entire product markets that Apple would prefer to keep to itself--most vitally, notebook computers.

Power Computing, Motorola, and Umax, the three major Macintosh-compatible vendors, all are apparently ready and willing to produce laptops for the Mac operating system (OS) market. But unless Apple allows this market to happen, Macintosh-compatible laptops will remain worthless, unmarketable prototypes.

Apple, in fact, has yet to negotiate a licensing agreement with any of its clone vendors. At issue, among other things, is a sliding fee scale, according to sources close to Apple. The sliding scale would mean that Apple would receive more in royalties for some clone designs than others. The problem, say sources, is that the currently proposed scale remains under Apple's control, giving the company the opportunity to determine what markets clone vendors compete in.

Power Computing, for its part, not only wants to produce a laptop, but has hired the expertise needed for laptop design, according to its vice president John Ellett. Members of Apple's original PowerBook design team are now employed at Power Computing, and the company is "very confident" they have the ability to produce a quality clone laptop, according to Ellett.

President Joel Kocher has at several points waved what he said was a prototype CHRP laptop in front of audiences here, as he publicly pressured Apple to give the go-ahead on laptop clones. The only thing holding Power Computing back is a lack of authorization from Apple, said Ellett.

"We're firm believers that choice is critical to the platform," said Ellett. Power Computing so far has been the most vocal of the clone manufacturers in demanding laptop licensing. The company risks irritating Apple to the point of damaging relations seriously, according to some observers at Macworld Expo.

Power Computing has also considered building laptops for the Intel market as a way of building experience while waiting for Apple to permit it to build a laptop for the Mac OS. But with the way things are going, the Intel market could become Power Computing's primary strategy.

Umax, another major clone manufacturer, is also prepared to develop a laptop if given the go-ahead by Apple, according to Phil Pompa, Umax vice president of marketing and strategic planning. "We've got the technology to do it," said Pompa. "Licensing is the main issue holding us back." Umax would like to "fill in the gaps" in the Mac OS laptop market, according to Pompa, rather than competing head-to-head.

Motorola officials declined to discuss laptop development but were reportedly showing off a PowerPC 750-based CHRP prototype laptop in private meetings.

According to Power Computing's Ellett, the notebook licensing debate is one of three issues that the overall licensing controversy revolves around. CHRP, Rhapsody (the next-generation Macintosh OS), and portables are all areas where Apple needs to clarify its stance.

The sliding scale appears to be looming behind all three. Under this proposal, Apple clone vendors would pay a flat fee for each copy of the Macintosh operating system and an additional fee related to hardware designs that will be necessary even if CHRP is released, said sources.

Clone vendors want the scale to relate to an objective factors, such as megahertz (chip speed), or the estimated cost of a machine. Apple, on the other hand, wants more flexible control over the hardware fees, raising concerns that the company really wants to use the scale to force clone vendors out of markets where Apple believes it should succeed. Apple has claimed that the clone vendors have primarily cannibalized their own markets, rather than opened up new ones.

Eugene Glazer, technology analyst for Fortis Adivsers, said that Apple is in a near-intractable dilemma. Overall, cloning has impacted the company's revenue and earnings negatively. At the same time, the company needs the clone manufacturers.

Sliding scale fees are common, he added, but usually related to objective factors, such as cost or gross percentage of volume sold.

Kimball Brown, an analyst at Dataquest, said that it makes sense for Apple to move to a sliding scale. Lower fees on lower-megahertz processors would prompt the clone makers to move to the low-end market. Until now, Apple has charged flat fees, which has encouraged clone vendors to mostly aim for pricier machines.

At the same time, however, such a scale would mean ceding the education market. "They don't want to enable the low end of the market because it would kill the education market," he said.

In the end, Apple may not even release the specifications for CHRP, as a way to retain licensing fees.

"It's myopia and this is Apple," he said. "This needs to get resolved ASAP."

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