Apple Eliminates the Top Clone Vendor

by Stephen Beale

from the November 1997 issue of MacWorld magazine

Apple Computer drove spike through the heart of its Mac OS-Iicensing program when it announced on September 2 that it will acquire the core assets of Power Computing, the company that built the largest Mac-clone business. Apple will exchange $ 100 million in common stock for Power Computing’s Mac OS license and 200,000-name mailing list, and also has the right to retain Power Computing executives involved in direct marketing, distribution, and engineering.

Power Computing will continue as a vendor of Windows PCs, but as of December 31, it will no longer sell Mac systems. Power Computing has also canceled a planned initial public stock offering and halted construction on a new $25 million headquarters near Austin, Texas.

Competition No More

The acquisition eliminates Apple’s stiffest Mac systems competitor, one that claimed nearly 10 percent of the Mac market in the second quarter of 1997, according to Daraquest. Apple also stands to benefit from Power Computing’s expertise in direct marketing and build-to-order manufacturing; Apple currently sells almost all of its systems through dealers, but plans to step up its own directmarketing efforts.

First Licensee

Power Computing was founded in 1993 by PC-industry veteran Stephen Kahng, who anticipated that Apple would soon be open to licensing the Mac OS. In September 1994, Power Computing and Radius became the first Mac OS licensees (Radius later sold its Mac systems business to Umax Computer). Power Computing shipped its first Mac system in May 1995, but it wasn’t until spring 1996 that the company began shipping systems in significant volumes, eventually growing to $400 million in annual sales, according to Apple estimates. Power Computing systems consistently outrated competing Apple systems in Macworld, MacUser, and MacWeek reviews.

Power Computing’s troubles began early this year when Apple signaled that it would rake a hard-line stance with its licensees, seeking to charge considerably higher licensing fees and impose other conditions. On June 18, PowerComputing and Apple reached a tentative agreement that was included in a document filed with the Securities and Exchange Commission (see “Mac OS 8 Ships with No License Deal,” News, October 1997). But the deal was never finalized, and after Gil Amelio’s July 9 resignation as Apple CEO, de facto chief executive Steve Jobs began an effort to eliminate or seriously curtail the licensing program.

Events crested at the August Macworld Expo in Boston, where Power Computing president Joel Kocher tried unsuccessfully to rally attendees into a mass protest of Apple’s licensing policies. In mid-August, Kocher and several other senior Power Computing executives resigned over the licensing flap; Kocher wanted to sue Apple for breach of contract, but the company’s board of directors chose to continue the negotiations that led to the acquisition.

Now that it has sold its Mac assets to Apple, Power Computing will continue to sell Mac systems until the end of the year. Public Relations Manager Mike Rosenfelt says d1e systems will ship with Mac OS 8, and that Power Computing will likely offer discounts as it clears inventory. Ironically, Power Computing’s demise may mean even more price pressure on Apple, at least in the short term.

Power Computing says it will provide all technical support for hardware and system software until December 31. Beginning January 1, 1998, Apple will be the primary techsupport contact. If your problem is with the Mac OS, Apple tech support will handle it, but if you need hardware or warranty support, Apple will transfer you to Power Computing’s tech-support facility.