The Apple of Power's eye

Mac clone maker Power Computing, anxious to take over the world, finds it is still governed by Apple.

4 min read
Power Computing, the first Mac clone maker, expects to further fuel its fast growth with the Apple Computer (AAPL)-Next merger.

"We will support the Apple-Next operating system, which is basically the next technology," said Stephen Kahng, Power Computing founder, chairman and chief executive. "It will basically give us our next generation and advanced operating system in a timely manner."

Kahng noted the company hopes to ship Mac clones with the new operating system within a year of Apple releasing its own products with the software.

Impossible? Observers point to PC clone maker Compaq Computer (CPQ) and the company it imitated and then outpaced, IBM (IBM). But while Compaq hitched itself to a phenomenon on the verge of exploding, Power Computing is left trying to propel a market on the verge of exhaustion.

Stephen Kahng, Power Computing founder and chief executive
Power Computing remains undaunted. Instead of keeping in Apple's shadows, the company seems to think it can help revive the market through its own technological innovations, proving that it can be both bolder and faster than Apple. While the clone market is still small, Power Computing has impressed users with its high-powered systems and market analysts with its management acuity.

"I'm impressed with the management of their company and their aggressiveness. They have been able to capitalize on some opportunities effectively and bring products faster to market than Apple," said Scott Miller, an analyst with market research firm Dataquest.

Still, no matter how nimble, Power Computing is tied to the fate of Apple.

"Apple and I share a common goal of growing the Macintosh platform," said Kahng.

Power Computing is enthusiastic about Apple's decision to acquire Next Software and create a new operating system.

"Power is excited that Apple looked outside the box. This is a bold and aggressive move and we applaud it," said Mike Rosenfelt, a Power Computing spokesman. "The more Apple can do to better compete against the Microsoft-Intel architecture, the more we win."

Last month, faced with Apple's waffling over its operating system future, Power Computing didn't look like it was going to wait for Apple.

It announced it had struck a deal with Be, a company founded by a former Apple executive, to license its operating system. Power Computing will run the BeOS--which has been touted by software developers and was Apple's original acquisition target--in addition to the Macintosh operating system.

On the performance front, Power Computing in August rounded out its product line with low-priced computers that run at 240, 200 and 180 MHz--faster than the Windows 95-Pentium systems they compete with. That product followed July's unveiling of the PowerTower Pro, a 225-MHz system that outperforms all Pentium and Pentium Pro systems.

Two years after Apple opened up its operating system, Mac clone makers as a group represented only 8.5 percent of the U.S. Macintosh market in the third quarter, according to market research firm Dataquest. Apple shipped 492,000 units in the third quarter while privately held Power Computing is estimated to have shipped 45,800 units.

Everything is relative. Kahng notes that during the first full year his company began shipping products, Power Computing generated more revenue than Gateway, Dell, and Compaq combined in their first year of shipments. Kahng said his company's revenues have since grown at a 40 percent rate from quarter to quarter, but he expects that to slow down in the near future to about 15 percent a quarter.

Power Computing also has turned a profit every quarter since its first full quarter, Kahng said. He noted that net profits fall within the industry average of three to eight percent. Industry analysts estimate that Power Computing has shipped 80,000 units during the first nine months of 1996.

Kahng says he has a long list of strategies to continue growing the company. First on the priority list is to streamline operations and generate a faster rate in turning over inventory, he said. The company is looking at increasing its move away from proprietary Mac specific components. The company is also increasing its capital expenditures, from building a new headquarters campus in Texas to investing in a new internal computer system for better inventory tracking.

Furthermore, Power Computing plans to jump into the European market--with an overseas headquarters site by midyear--and the Japanese market by the end of 1997.

Kahng said the company will be able to fund its expansion plans internally in the near future, rather than launch an initial public offering or ask for further investment by its initial corporate backers Olivetti, LG Group, and ASCII as well as its venture backers--led by Kleiner Perkins Caufield & Byers.

Regardless, Power Computing is still riding Apple's coattails and like everyone else must wait and see if Apple will be able to revive its fortunes.

"If Power Computing does an IPO, the issue for them is whether the market will be willing to place a bet on the Macintosh demand growing in the long run," said Kurt King, an analyst with Montgomery Securities. "Power Computing has clearly been a winner and not a concern for an investor. Apple needs to deliver results for the market to accept a Power Computing IPO."