In a stunning move, Apple will purchase Next Software and bring former CEO Steve Jobs back to the company he cofounded.
Apple will pay about $350 million in cash and stock for the privately held Next to purchase that company's shares and an additional $50 million to cover its debts.
Under the merger, which is still subject to regulatory approval, Apple will take control of all of Next's products and services. Jobs, who has become something of a historic figure in Silicon Valley, will leave his post as Next's chief executive to become an "adviser," reporting directly to Apple chairman and CEO Gilbert Amelio.
The return of Jobs, a bold move that has been speculated for years, appears to be aimed at radically changing the public perception of Apple, which has suffered steady losses since losing market share over the last decade.
"It's perfect," said Bob Metcalfe, cofounder of 3Com and vice president of technology of the International Data Group. "The new team at Apple has Dr. Amelio and Ellen Hancock. They are extremely competent, but they lack one thing: charisma. Steve adds that to the mix."
The surprise merger also answers the long-awaited question of what Apple's next-generation operating system will hold. The company has been shopping for an operating system since abandoning its own Copland system earlier this year and had been negotiating with Be and other companies to fill that void.
Apple hopes that Next's object-oriented, Java-enabled open development platform will significantly improve its Internet and intranet position because its technology is agile. It also hopes to capture strength with Next's enterprise position.
Next's cross-platform development environments in the enterprise and Internet and intranet space allow developers to write once and deploy across a range of Internet and client-server platforms. Amelio said Apple expects to ship products with the Next operating system in 1997.
"This is a complementary arrangement, and the pieces fit together better than any other alternative we looked at, and it will launch a new round of technology," Amelio said in a press conference tonight.
That arrangement also will benefit Next, according to Jobs. Merging with Apple provided a better opportunity for the company than moving forward with an initial public offering that it had planned earlier.
Jobs said the deal will provide Next with a method to generate the high volume that developers had been seeking. "On our own, we would have been limited in achieving that high volume," he said.
Next will be married with Apple's very high-volume hardware platforms and marketing channels to create another breakthrough, he said.
Some analysts were cautious in their assessment of Apple's wisdom in choosing Next. "I am a little bit surprised by this move, and I still have to digest this," said Daniel Kunstler, who follows the computer systems industry for the investment banking firm J.P. Morgan. "There are no real details as to how they are going to use the Next technology and platform to jump-start their own operating system or how long it's going to take."
However, he added: "I really don't see any downside to Steve Jobs returning to Apple."
Creating new leadership is nothing new to Apple. Amelio himself was lured away from his job as chief executive of National Semiconductor to resuscitate the flagging company in February. But while he is widely respected for his business skills, Amelio's reputation is more that of a corporate expert and tactician, than an executive who leads by force of personality.
After being credited for turning around National Semiconductor, Amelio has begun to strengthen Apple's financial state. But a turnaround is far from complete. Although the company announced in October that it would post a profit for the fourth quarter, many analysts remained apprehensive.
The company earned a $25 million profit, or 20 cents a share, on revenue of $2.3 billion for the quarter that ended September 27, its first profitable quarter of the year. That exceeded Wall Street's estimates of a loss of 30 cents a share, but the results still fell short of the 48-cent mark that Apple earned for the same quarter last year.
Market reaction to Apple's prospects has been mixed. Its stock closed today at 23-1/2, up 1-1/4. Shares have traded as high as 35-1/2 and as low as 16 over the past year.
Next's financial history also has been erratic throughout its 11 years. Some say that has kept it from achieving its long-standing goal: going public.
In the early 1990s, Next turned to its Japanese partner Canon for cash. On top of an original $100 million investment in 1989, Canon provided another $10 to $20 million in 1991 and extended a $55 million credit line in 1992.
In February 1993, Next said it would stop making the Nextcube and Nextstation, choosing instead to focus on industry standard object-oriented software for mainstream platforms.
The strategic shift has paid off. For fiscal 1994, the company posted a $1 million profit on $50 million in sales. As of this month, Next has licensed its WebObjects to more than 275 customers, including Chrysler, Nike, and Walt Disney. The software will be used to help Disney launch an online service in January to compete with the likes of Microsoft and America Online.
But all are not optimistic about the Apple-Next merger. "In the enterprise space, we believe [Apple] technology is not state-of-the-art," said Zack Rinat, president and CEO of NetDynamics, which produces a competing Web application development tool.
"Customers need a total solution, including system integration, consulting, and support services. This is not a core competency of Apple's," he added. "As long as Next and Apple focus on integrating Next technology into the Mac OS, I think this will be a successful venture."