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Power Computing to halt PC sales

Former Mac clone maker Power Computing has halted sales of its recently introduced Windows-based notebooks as the company continues to redefine itself.

Former Mac clone maker Power Computing has halted sales of its recently introduced Windows-based portables as the company continues to redefine itself and its business strategy.

Without new sources of revenue from notebook sales, the once high-flying company--which predicted annual sales of $250 million in last June's failed attempt to go public--is likely to become little more than a footnote in Apple's corporate history book, industry observers said. Company officials, however, said that a decision to close shop has not been made, and that the company is still investigating potential business strategies.

"I would anticipate that in the next few weeks we would sort out what our plans are. Obviously, we are not doing much in the interim. We are trying to find a more efficient way of doing business," said Bill Goins, director of product marketing for Power Computing.

The company has also stopped selling Mac-compatible systems directly to consumers, although it continues to make a limited number of machines for catalog resellers, according to Goins.

Taken in conjunction with the halt in PC notebook sales, the company's outlook isn't promising, observers said.

"Power Computing has done a lot of marketing to build brand recognition on the Mac side, but they didn't get a lot of exposure on the Windows side, which is what they are just learning," says James Staten, an analyst with Dataquest. Smaller PC makers, usually known mostly in a limited geographical region, have stopped and restarted PC sales before, and even CompUSA has successfully taken a breather from the PC market, Staten noted, but those companies have usually had other sources of revenue.

After December, Power Computing will no longer have revenue from Mac sales as it is contractually obligated to Apple to stop selling Mac clones. According to sources close to the company, Power has sold through approximately $75 million in inventory. In combination with the $100 million in stock received from Apple and a revolving credit line of $30 million, the company probably has about 12 months time if it decided to stay open, financial analysts say.

"To stop and start again is probably OK, but the problem is overcoming the negative publicity," Staten says. The other problem is that the notebook market they are trying to enter is very mature, he said, and other entrants such as Fujitsu, Sharp, and Hitachi are willing to lose a lot of money to buy recognition in the market, something Power may not be able to do.

Others close to Power Computing aren't rating the company's chances much higher. Furniture and other company assets are being liquidated, according to one source, but that may be the natural result of having laid off almost half of the company's workforce. Another source was slightly more upbeat, saying "Is there a risk that they'll say that's the end of it? Yes, but I don't think that's Steve's intent. He's still looking at getting partners to do design and manufacturing of products." "Steve" refers to Power Computing CEO Steve Kahng.

In an October interview with CNET'S NEWS.COM, Kahng discounted predictions the company would fold, saying "We'll come out with some business strategy or model, and go from there." But without any products to sell, let alone a strategy, the company faces a difficult future.

That future was determined in part by Apple interim CEO Steve Jobs, who in September curtailed Mac OS licensing for clone makers as part of a survival strategy for the Cupertino, California, company. Numerous industry sources say Jobs played an instrumental role in shutting down Power's Mac business, and played an incidental role in Motorola's decision to exit the Mac business.

Soon after being pushed out of the market for Mac-compatible systems, Power Computing announced the debut of its PowerTrip line of notebooks, which have high-end Intel MMX Pentium processors.

The notebooks were intended to serve as Power Computing's bridge to the Windows-Intel world, but by late October, the first cracks in that bridge started appearing. Power Computing laid off 18 employees, half of its notebook engineering and marketing team, a result of lackluster response to its PowerTrip offerings, as reported by CNET's NEWS.COM. The company was reportedly able to ship only 150 notebooks out of a meager 1,000 orders after the systems were introduced.

To make matters worse, Power has experienced legal troubles, including a lawsuit by TCI Manufacturing, a Canadian-owned company based in Taiwan. The lawsuit seeks nearly $42 million in damages over an alleged breach of contract, claiming that Power Computing refused to compensate TCI for canceled orders of enclosures and power supply technology custom-designed for the company. Power has denied that the lawsuit has any validity.

"I wouldn't say their chances are good," Dataquest analyst Staten said of Power Computing's future.