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Mac maker


CNET Newsmakers
January 9, 1997, Stephen Kahng
Mac maker
By Dawn Kawamoto
Staff Writer, CNET NEWS.COM

Stephen Kahng's life is a patchwork of rebellions so small, so quiet, it has all but gone unnoticed. That was until he started cloning Macs.

In 1967, at age 18, the ambitious teenager left Korea for college in the United States. Pulling up short of the doctorate expected by his family's two generations of engineering Ph.D.s, he left school to pursue a career in the untested field of computers.

A first job designing mainframes at IBM eventually led Kahng to pioneer computer manufacturing techniques that revolutionized the art of building low-cost PC clones.

Now Kahng is putting that expertise to use in a more unlikely market, Macintosh clones. Apple had steadfastly refused to allow any outsiders to manufacture Macintosh hardware until Kahng negotiated the first official license.

Originally, Kahng set out to produce the kind of cheap, under-$1,000 clones that fueled PC market growth. But as Apple faltered, losing consumer confidence and, in the last year, about 40 percent of its market share, Power Computing's shift to selling souped-up, custom-order clones turned out to be prescient. Kahng found success among Apple's most loyal market: graphic artists. By getting the latest, fastest CPUs and other improvements out faster and in more flexible configurations than Apple, Power Computing has graduated from being the first to being the biggest Macintosh-clone maker. Apple may have vacillated on choosing a source for next-generation operating system technology, but Kahng didn't wait for its blessing before licensing the Be OS last month. And even though Apple has decided to buy Next and the NextStep operating system, Kahng says he hasn't made a misstep. Power Computing will simply ship Mac hardware that supports both. Another small rebellion.

Sitting inside his sparsely decorated office at the company's research and development site in Cupertino, California, Kahng discussed how his past experience in the computer industry helped prepare him to negotiate a deal with Apple and Be for operating systems on his clones, how those deals unfolded, and where the Mac clone business is headed.

When you were negotiating your Apple license, what were the main challenges of doing that deal?
Kahng: It took us about eight months to get the license from Apple. Initially, it was difficult for Apple to consider us as a serious company because at that time we were a ten-person, sort of engineering organization with no name.

NEXT: Negotiating the Apple deal

Stephen Kahng

Age: 47

Claim to fame: First official Macintosh clone maker

Education: University of Michigan, Masters of Science degree in computer science and electrical engineering

Reading material: History, art and music books, as well as financial magazines and newspapers

CNET Newsmakers
January 9, 1997, Stephen Kahng
Negotiating the Apple deal

What were your first steps to get your foot in the door?
Well, the first few months I did not make a whole lot of progress, but I made a lot of friends. When I first started negotiating a license with Apple in April of 1994, I did not know one person at the company. But I did a lot of homework--I did not open my mouth until I studied everything very thoroughly and understood pretty much every issue and would know what the response would be when I asked certain questions.

Once your foot was in, what then?
I began to understand the internal structure for Apple's decision-making process. I made several friends at different levels of the company who could go to bat for me. And then later on, I went and presented my business case.

What was that business case?
I proposed a different strategy. In the PC world, about 20 percent of computers are sold through a direct channel, whereas Apple is selling through distributors and dealers only. I basically offered an alternative solution which they needed to fill to meet their customers' requirements. I was also able to convince them that I have strong backers, both corporate backers as well as venture backers, who could make this successful.

When did the big breakthrough come in these negotiations?
The breakthrough came just before Comdex in October of 1994. They told us they would be giving Power Computing a Mac OS license. Apple intended to give its licenses by the end of that year and I was the one who was ready to start production. We were able to prove that we had a good engineering team who could execute.

What issues is your company facing today?
When a company grows as quickly as us--at 40 percent growth per quarter--you're always running in a chaos mode. You're always in a panic and there is not as much structure as you want to see. So we're now spending our efforts building a culture and communicating to employees so we're all going in one direction.

What does Apple's acquisition of Next and the future development of a new operating system mean for your company?
We will support the Next operating system, which is basically the next technology. Basically, it gives us our next-generation and advanced operating system in a timely manner. It's too early to say when we'll ship, but we hope to within one year [after Apple releases its version on their machines].

NEXT: BeOS and the Mac clone future


CNET Newsmakers
January 9, 1997, Stephen Kahng
BeOS and the Mac clone future

How would you characterize your negotiations with Be to license its operating system alongside the Mac OS on your clones?
Initially, I was somewhat skeptical that somebody could come in and write a new operating system. But I am really impressed with Jean-Louis [Gassée, Be founder and chairman] and his team. I am not brave enough to take that kind of big challenge. What we are doing is much less challenging than what he is doing, but I think he has superior technology.

What makes his technology superior?
Technology has changed. People are using computers differently now. Nowadays, multimedia and Web content authoring is very popular, much more than doing word processing or spreadsheets. When Windows 95 or other operating systems were written, they were based on the old environment. So, Be came in and basically did a technology leapfrog to address the changes.

What were the key considerations in doing the Be deal?
I've known Jean-Louis for some time. He and I are good friends. Basically I told him there was one thing I needed from him and it was the most important thing. I had to make sure I had access to [Be's] technology for quite a long time, no matter what happens. He basically told me he was going to check with his board members. Two days later he said yes.

[Editors Note: Apple had earlier been in negotiations to acquire Be for its operating software, but talks broke down over price.]

What do you think of the Apple-Be negotiations?
I believed that Be and Apple needed each other and I had high hopes that those two companies would come to terms. In my contract with Be, I made sure that our deal would not interfere with Apple's deal with Be.

Industry analysts have predicted that clone makers will represent about ten percent of the Macintosh-desktop market. What do you think of that figure?
I think ten percent is a very do-able target in 1997. In fact, it may be larger than ten percent. Apple's management has said they think the compatibles market can go up to 25 percent of the market. I think those numbers are do-able, but it's difficult to say right now when that will be.

How are you faring against the other clone makers such as Umax and Motorola?
They came into the market later than us and are making some progress, but we are still shipping more products than all the other licensees combined at this time. We were a little shy of shipping 100,000 units in our first year, but we exceeded our revenue goal and have been profitable from almost the first full quarter of operation.

Who do you consider your competition--the clone makers or the PC makers that also sell through a direct channel like Power Computing?
We are not really competing with the clone makers, in some sense, because they use a different channel. They're using the traditional two-tier retail channel, where we're focusing our effort on a direct channel.

Looking at all your life experiences, what were some of the key things that helped shape and affect the way you run your business today?
IBM gave me the basic training in technology and some management training in terms of structure and organizational skills. After IBM, I came to Silicon Valley and got involved in a few start-up companies. I learned a lot about starting a company and the entrepreneurial spirit. I also was a consultant to lots of companies in the earlier days, especially Korean companies like Samsung and Goldstar. I was fortunate enough to be an advisor to the high levels of management, even up to the chairman's level. I learned their way of doing business--how they negotiate the deals, their strategies. As consultant you teach a lot, but you also learn a lot from the other people too.