Apple's Mac clone purchase draws mixed reviews in federal market

Apple Computer Inc. last week agreed to buy the largest Macintosh clone vendor a move that played to mixed reviews in the federal market.

Apple said it plans to purchase the "core assets" of Power Computing Corp. in a stock transaction valued at $100 million. Apple will buy Power Computing's license to distribute Macintosh operating system software and customer lists and it will retain key employees in engineering distribution and marketing. Power Computing inked a licensing agreement with Apple in 1995 to build Macintosh OS-compatible PCs and launched a marketing campaign earlier this year [FCW April 14]. The company has revenue of about $400 million.

Some observers said the combination will strengthen Apple's product line as the company gears up to offer new hardware and new operating systems software. But others said Apple's elimination of a key clone vendor signals a return to Apple's former monopolization of the Macintosh market. In addition to agreeing to buy Power Computing Apple also is refusing to license new Macintosh technology to other clone vendors including Motorola Corp. Umax Data Systems Inc. and sublicensees of IBM Corp. "My guess is Apple is trying to get rid of anybody who is a real competitor" in a bid to recapture market share said Ron Casoni a consultant who has worked with Power Computing. In recent quarters clone vendors took as much as 29 percent of the U.S. Macintosh market according to Dataquest Inc.

"Anytime that a monopoly rears its ugly head it means prices are going up " said Charles Mokotoff a computer specialist at the National Institutes of Health's Division of Computer Research and Technology. NIH runs Macintosh computers from Apple and clone vendors including Power Computing.

But Marc Cannady Apple/ Mac OS business manager at Government Technology Services Inc. believes that Apple and the other Macintosh clone vendors eventually will reach an agreement on licensing and that Apple's pricing will remain competitive. GTSI carries Macintosh systems from Apple Power Computing DayStar Digital Inc. and Umax and plans to add another Mac clone vendor to its stable.

Before refusing to license new technology Apple had been seeking higher licensing fees from the clone vendors.

Cannady said federal buyers will benefit from the pooling of Apple's and Power Computing's engineering resources. He noted that both companies have been working on products that will run the G3 chip the latest microprocessor in the PowerPC line. G3 chips start at 250 MHz and will run at more than 400 MHz Cannady said. "The two together will make a great product " Cannady predicted.

Cannady said Apple is expected to release a G3 product later this year. He added that the new hardware coupled with Apple's next-generation operating system Rhapsody will give Apple "great stability" in the federal market.

"It looks like they are trying to go back to the way Apple used to be with a high-quality operating system and cutting-edge technology " said Payton Smith a research analyst with IDC Government.

Another plus for federal customers will be ongoing support for the Power Computing product line. According to an Apple press release "Apple will provide ongoing Mac OS support to Power Computing customers and Power Computing will continue to provide hardware and warranty service to its customers." Power Computing also will continue to sell its Mac OS machines through December 1997.

Mokotoff said Apple's statement "puts to rest" concerns such as obtaining support for the recently released Mac OS 8 on Power Computing machines. He said the operating system has encountered problems running on Power Computing PCs in some cases. He added that NIH has purchased more than $500 000 worth of Power Computing systems.

Power Computing meanwhile will remain in operation as a maker of PCs employing Intel Corp.'s chips and Microsoft Corp.'s Windows operating systems. Earlier this year GTSI FDC Technologies Inc. and McBride & Associates agreed to carry the company's products in the federal market. Cannady said he has not discussed offering Power Computing's Windows product line but he added that such an arrangement is possible.

Power Computing officials could not be reached for comment.