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Power called more harm than good

Apple explains it bought Power Computing because Power wasn't expanding the market for the Mac OS, and was therefore hurting Apple.

Apple Computer detailed its reasoning behind the purchase of Power Computing at a press conference today, saying in essence that it bought the company because Power didn't expand the market for the Mac OS.

Apple purchased the "key assets" of Mac merger Power Computing, the largest Mac clone maker, in a stock deal worth $100 million. Among those assets are 25 employees experienced in direct marketing, the company's customer database, and the license to distribute the Mac OS operating system. The purchase means that Power Computing will not sell any Macintosh-compatible systems after December 31.

During a conference call, Apple executives strongly suggested that they were not happy with the efforts of the remaining big Mac clone manufacturers, most notably Motorola and Umax. The comments cast doubts on Apple's interest in continuing its licensing program.

"When Apple originally designed its licensing program back in 1994, the intent was for it to be expansionary [sic] that our developers could have a better economic proposition and our PowerPC partners, Motorola and IBM, could have a better economic proposition," explained Fred Anderson, acting CEO for Apple. "The unfortunate reality was that the clone vendors did not sell very many systems to new customers. I'd guess 99 percent of their sales represented sales to the existing customer base...That's why it really was not positive for Apple and its shareholders."

Apple is insisting that any new agreements must include a plan to expand the Mac market. Without such a plan in place, Apple says it will withhold key technologies needed for next-generation Mac systems.

Umax, for one, maintains that it has helped grow the Mac market and can continue to do so. "We are very different than Power Computing. We are focused on being a channel partner," according to Bruce Berkoff, director of product marketing for Umax. Berkoff notes that the company has offered new models below $1,000, which Apple does not do, and is offering multiprocessor systems on the high end of the market. The company also has the ability to deliver systems to the Asian markets, something else Apple does not have.

"It's a very different situation [from Power Computing]," Berkoff said. "Our license lets us sell OS 8 through non-CHRP [common hardware reference platform] systems. We haven't decided whether it will come preinstalled or not."

Motorola is the only vendor whose immediate product plans are affected. Apple says it will not certify Motorola's StarMax Pro 6000 series computers, which are scheduled to be shipped later this month. The newest StarMax computers are based on the CHRP platform and offer the PowerPC 750 processor and other performance enhancements. Motorola officials could not be reached for comment.

Apple officials later backed off their opening remarks, noting that they were still in negotiations and were abiding by earlier agreements which would allow the companies to ship Mac OS systems.

"We are continuing to honor the existing licensing agreements. Other major licensees that will continue under these current licensing agreements include Motorola, Umax, and IBM, which of course, really hasn't gotten

Fred Anderson, acting CEO, on OS licensing
their program off the launching pad in a significant way yet," Anderson said. He emphasized that "We have no plans to give them Mac OS 8 for CHRP and we don't have any current plans to give them new Apple-licensed proprietary designs to licensees. But they can continue with the current designs they are licensing."

Currently, clone vendors pay Apple for each copy of the Mac OS sold on a system, and they also pay for use of hardware designs. The Mac OS 8 is an important release for clone vendors because it is needed for CHRP. Mac OS 8 and CHRP-compliant hardware are key technologies that will allow Mac clone vendors to enhance system performance and introduce innovative products more rapidly, but Apple is not inclined to let the clone vendors get too far ahead of Apple.

"If we could have a licensing agreement that...grew the base of customers and if it enhanced the shareholder value of Apple, then we would have a positive attitude towards licensees. But through our negotiations with the licensees, we haven't been able to develop an agreement on any program that would meet Apple's objectives," claimed Anderson.

As evidence that the clone vendors have failed to expand the market, Anderson pointed to Apple's declining sales, saying that they company shipped 4.5 million units in 1995 and will ship about 3.5 million units this year. However, sources have told CNET's NEWS.COM that the company did an internal study which suggested that no more than 50 percent of its lost sales went to clone vendors.

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