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Apple spins off Newton division

The troubled company primps its Newton unit for sale or initial public offering by making it a subsidiary.

Apple (AAPL), in an effort to stem the flow of red ink and refocus its operations, today said it will dress up its Newton unit for sale or an initial public offering by making it into a new, wholly owned subsidiary.

The subsidiary, which is seeking a chief executive, will be run by chief operating officer Sandy Benett, who has overseen the Newton Systems Group for the past two years. Newton will house the eMate 300 mobile computer and MessagePad 2000 handheld product lines.

Although the group has been generating revenues, it has not been able to reach its full potential under Apple, which has a number of other problems to address, Benett said. He noted that the subsidiary as a separate company may lead to more business that would otherwise be viewed as a conflict with Apple.

The new company will continue to support, sell, and market the current MessagePad 2000 in the retail channel. And it will serve, support, and sell the eMate products to the education market through Apple.

Under this arrangement, the subsidiary will be able to break out its revenues and profits, rather than being lumped in with Apple's financials. This gives a clearer picture on Newton's financial performance, which the troubled Apple hopes will help attract potential investors.

Apple says this quarter's sales of new products, which just became available in March, are three times greater than the previous quarter, but declined to give any specific numbers.

But why spin the unit off just as it appears that the products are selling well and generating revenue?

"Apple needs to narrow its focus and execute well to get back to growth and profitability. We feel that Newton's future is best served as a company with independent management...Newton's full potential won't be realized within Apple," said Fred Anderson, chief financial officer.

The computer maker said it will initially fund the subsidiary, which it expects the subsidiary to be profitable in the first year.

"We are open to an outside investor and IPO down the road," said Anderson.

Last March, Apple announced a restructuring plan to cut nearly 25 percent of its permanent workforce as it came up against an unexpectedly high loss of $708 million for its second quarter and declining revenues that fell to $1.6 billion. At the time of the restructuring announcement Apple said it would cut funding on such areas as Cyberdog, OpenDoc component technology, and speech technology.

Many industry watchers were surprised that the Newton unit did not receive the ax at that time.

The Newton computer group encountered sluggish sales when it first rolled out its handheld Newton device four years ago with much fanfare.

The group, however, recently developed a revised version targeted to school children; the eMate is a portable computer with a keyboard and is priced at around $800. Also, the new MessagePad 2000 has been well received in markets such as health care and sales operations.

Apple will become the exclusive licensee of the eMate product, but the Newton division will be able to develop and sell products in similar form factors. Apple itself is still considering whether to sell another version of the eMate for business users who want a lightweight portable computer or companies that want to add inexpensive computers to their existing networks.