Apple Computer essentially killed off the Mac clone market Tuesday, announcing that it would buy out its biggest competitor, Texas-based clonemaker Power Computing and quit licensing new technology to the others.
After weeks of spirited discussion that led to the resignation of Power president Joel Kocher and put the start-up's intention to go public into an ugly holding pattern, Apple said it will effectively buy back Power's clone license for US$100 million in common stock and let the company make a stab at the Wintel market instead.
In a meeting with analysts Tuesday morning, Steve Jobs - apparently running the show at Apple from his seat on the board - said he had asked the clonemakers to cough up significantly more in licensing fees, and they had balked. So Apple negotiated the most amiable deal it could with the biggest clonemaker, buying all of Power's Mac assets and the rights to hire away key engineers and direct-marketing executives.
The other clonemakers - including Motorola and Umax - will be cut loose, allowed to continue only with products for which they currently hold licenses. They will not be licensed to sell new Apple technology. "We have no plans to give them Mac OS8 ... or the new Apple-licensed proprietary designs," Apple CFO Fred Anderson said in conference call.
Nor does the company want others to make Macintosh laptops. Apple is also closing the door to licensing this technology, Anderson added.
"[Clonemakers] won't have access to any technology moving forward," said Tim Bajarin, president of Creative Strategies, who was present along with about a half dozen others at the meeting with Jobs in Cupertino on Tuesday.
Nonetheless, the other clonemakers appear to be undaunted. Motorola, which was on the verge of unveiling a new Mac laptop based on technology that Apple will now refuse to license, is not likely to drop out of the Mac market without a fight - although officials at the company could not be reached for comment.
Umax is feeling smug about its position, despite Apple's overt gestures to cast shadows over the future of cloning. "We're not worried," said Bruce Berkoff, Umax's director of product marketing, adding that his company's scheduled to discuss licensing with Jobs later this week. "We're in a very different position than Power. We've announced no new machines that are affected by these announcements."
Umax is building low-end clones, targeting the less-than-$1,000 market. By not pursuing existing Apple customers, as Power has been accused of, Berkoff expects that Apple will see the clonemaker in a friendly light: as a contributor to expanding the Mac market, rather than a market share thief. However, Apple execs made some pretty fiery comments to the contrary.
"I would guess that somewhere around 99 percent of their sales went to the existing customer base," Anderson said of the clonemakers, "and only about 1 percent" was new business. He added that "if we could have a licensing program that would expand our customer base," Apple would consider pursuing future licensing. But so far "we haven't been able to."
Guerrino De Luca, Apple's executive vice president of marketing, spoke of licensing in the past tense during the conference call. "Every time a licensee was shipping a clone, we were subsidizing the clone by several hundred dollars," and the company is not interested in providing further subsidies, he said.
Wall Street didn't greet Apple's new defensive tone with open arms. Apple stockclosed at $22.38, up only 2.87 percent from the opening - nothing like the 37 percent jump it took when Jobs last month announced a $150 million investment from Microsoft. Power Computing will be free to trade its $100 million worth of Apple stock as of Wednesday morning, Anderson said.
Apple's retail channel may have something to worry about, too. Aside from the clonemaker's Mac OS license and engineering brains, the deal also gave Apple the keys to Power's direct-sales structure - its list of 200,000 customers and the right to hire away the key direct-sales executives it wants. But Apple will not be taking over Power's manufacturing operations, nor its customer support operations.
"This is something resellers should be concerned about," said James Staten, an analyst at Dataquest, who also attended the Jobs meeting. He suggested that Apple will have to address its role in sales directly with those who have been responsible for selling its products up to now.
"We were on the cusp of seeing innovation coming out of the cloners," Staten added. But Tuesday's announcement, he said, marked "the end of the cloning market." Of late, Apple has not been known for its technology innovation, or for competitive pricing - two areas where the clonemakers were able to make real headway.
"I would've liked Apple to come out with some killer products, but they just can't seem to," said Jeff Keller, creator and webmaster of PowerWatch, the unofficial site of Power Computing. "This whole buying-out-the-competitor thing sounds hauntingly like Microsoft."
