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Apple gets reality check

Macworld Expo Gil Amelio's address about the future of the Apple OS met a receptive audience, but the company still has a credibility problem.

Macworld Expo SAN FRANCISCO--Apple Computer (AAPL) still has a credibility problem.

CEO Gil Amelio's address about the future of the company's operating system strategy yesterday met a receptive audience: Not surprisingly, everyone at Macworld Expo still wants the company to succeed, and many think that the decision to buy Next Software and use its operating system is a good one. Of 627 responses to a NEWS.COM poll asking readers whether Apple unveiled a winning strategy yesterday, 70 percent said yes.

But that enthusiasm is balanced by skepticism among developers about Apple's ability to deliver, and to deliver on time. And if things look bad now, they may be a lot worse in 18 months if Apple doesn't adhere to its Rhapsody plan timeline. (See related story)

"It's prudent to develop a solid, stable product. But I'd like to take a wait-and-see approach based on Apple's past performance," said Christopher Lee, a graphic designer based in San Diego, California.

That comment seemed to be echoed everywhere, including Wall Street.

Amelio started speaking an hour before the market closed yesterday, but Apple's stock ended that day down 3/8 of a point. Today, Apple's stock finished up 1/8 of a point from yesterday's close of 17-1/2.

"The market hasn't responded to Gil's speech. The stock is flat today, and it was down yesterday," said Eugene Glazer, an analyst with Dean Witter. "We all knew what he was going to say, since the company released the broad parameters of its OS strategy while the market was still open."

He said the comments Amelio made regarding the company's $1.7 billion in available cash may prove less impressive in the second quarter. That's when Apple expects to take a $300 million charge for the acquisition of Next.

Glazer believes that the company won't pick up speed again until it ships its new operating system in 1998. "Their $1.7 billion cash position can go pretty quickly," he said.

In the meantime, Apple will have to parlay with two camps that have already sprung up in the Mac community around yesterday's announcement: the Next lovers and the System 7.x die-hards. While the company's plan calls for a two-pronged development approach that will move both operating systems forward, it may be hard to convince developers and users that Apple loves both pieces of software equally.

"I worked with Next OS six years ago, and I have to say it's the best user interface system I've seen," said Eric Herrmann, director of technology for Mac development firm Equilibrium. "The advantages of Rhapsody are good enough that I'm willing to wait for more details."

Many developers would agree: They may still have specific technical questions about the new operating system, but they are more than willing to wait for the answers.

But a lot of other developers who are loyal to System 7.x think it still has a lot of potential and are worried about being pushed to the side in a mad rush to the new OS.

"There's too much to do with System 7.x. I'm afraid with Apple's multitasking du jour that they're neglecting what's still the best OS in the industry," said Steve Sisak, programmer for Mac developer Codewell.

"I hope they're going to continue developing the existing OS. I want to see an orderly transition between System 7.x and Rhapsody," said a software engineer for Boeing who asked not to be named.

The speech itself did little to reinforce the impression that the transition will be an orderly one. Amelio said that Apple's track record on this subject is good, pointing to the relatively smooth upgrade from the Motorola 6800 chip to the PowerPC, which was widely recognized as a well-managed transition. But the speech itself was long--three hours--and full of abrupt pauses to thank a wide assortment of people. The inherent drama of the moment was undermined by the lack of organization, just another factor that undermined the audience's confidence in the message.

"Gil seemed a little scattered. It was pretty long. They had the walk-ons with Peter Gabriel and others. They could have had less of those," commented Darryl Hock, a software engineer for Jabil Circuit.

Despite the qualms, however, Apple still has a reservoir of good will to draw on.

"Anybody in high technology wants to see Apple be successful. I'm rooting for them. Steve Jobs is a great product impresario," said former Apple CEO John Sculley, who didn't actually attend the keynote.

And the Apple-Next OS strategy? "I honestly don't have much insight on that one," Sculley said. "I'm a marketing person."

Senior Editor Dawn Yoshitake and Internet Editor Jeff Pelline contributed to this report