Apple ally seeks independence

Seeking to protect itself, clone maker Power Computing is expanding beyond its Mac-only strategy.

4 min read
Rising Macintosh clone maker
Power Computing is making plans to get out from under Apple's (AAPL) thumb and looking to protect itself on a couple of fronts, as evidence surfaces about Apple's unyielding ways.

In filings for its initial public offering with the Securities Exchange Commission, Power Computing made it official: It intends to enter the Intel-compatible PC market in the first half of 1998. To date, it has pursued a Mac-only strategy. (See related story)

But the company also appears to be setting up a fallback plan if current negotiations with Apple Computer regarding licensing of the Mac OS don't go well.

According to the documents filed as a part of Power Computing's IPO, Apple has held up the introduction of new systems in the past by refusing to certify the systems for what Power Computing says were non-technical reasons.

Though Power Computing is still negotiating with Apple to use the Macintosh OS, the clone maker is also sub-licensing the Macintosh OS from IBM, Power Computing also revealed in its SEC filing. It signed this agreement with IBM about six months ago, according to sources close to IBM; the deal also means a steadier supply of systems to customers.

"The company's license agreement with IBM is more favorable than the Mac OS agreement [with Apple] in certain respects, and the company is increasingly relying on this agreement for its rights to the Mac OS," according to the filing.

Apple has increasingly become a bottleneck in the introduction of new systems, the Power Computing alleged in its filing. "The company has previously had problems with delays in receiving certification when Apple raised non-technical issues as conditions to certification, including requiring the company to renegotiate royalty rates."

"At least once, the company has postponed the introduction of a new product as a result of Apple's delay in certifying the company's products," it said. Power Computing is required to reveal such problems to potential investors because these delays could hurt the company's profitability as it moves towards becoming a publicly held company.

Apple requires clone manufacturers to wait for a certificate proving their boxes meet Apple standards before they can ship. Apple also licenses a special ROM (read only memory) chip that helps the operating system talk to the hardware; it has been reluctant to surrender control of the chip for fear that clone vendors will introduce systems that eat into Apple's sales.

Apple says it is just trying to maintain the integrity of the platform. "The big difference between Macintosh and the Wintel platform is that the Mac just works. We do think certification of designs is very important for maintaining platform integrity," said Russell Brady, a spokesperson for Apple.

But analysts say there is more to it than this. Apple is still trying to protect its high-margin hardware systems with controls on the clone market, according to Chris Le Tocq, an analyst with market research firm Dataquest.

"Apple is essentially saying we are trying to protect [Apple] hardware. But to get presence out there and get people excited in the Mac platform, you've got to remove the training wheels from your hardware group," he says, referring to Apple's certification strategies.

Apple does seem to have made some progress of late in negotiations to license the Mac OS, however. Sources at Motorola Computer Group have said that they are working on a new deal sets forth a new, less arbitrary mechanism for certifying clone systems. An arrangement in which cloners pay higher fees for higher-performance systems is also in the works, according to industry sources.

Power Computing and other clone vendors are anxious to license the upcoming version of the Mac OS which runs on a new technology, referred to alternatively as CHRP, or the PowerPC Reference Platform (PPCP). The specification for PowerPC-based systems lets manufacturers use off-the-shelf components and technologies.

But the clone vendors are still trying to resolve the issue of royalty payments--as well as simply trying to free themselves from Apple's control.

In its filing, Power Computing says "Unrestricted CHRP availability would allow the company to decrease its reliance on Apple for key components and no longer pay Apple royalties on hardware."

For Power Computing, which now says it is going to make Microsoft-Intel-based machines, PPCP would be a way to use identical industry standard components in both Mac and Windows clones. The company would be more competitive in the Mac market because by reducing overall system cost, purchasing a larger volume of parts at a better price.

The other promise of PPCP systems is that it allows for more flexibility in Mac clone designs, Mac notebooks included. Adoption of the standard should mean more rapid advances in system performance as well as an increased supply of machines as vendors draw on a larger pool of component suppliers.