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Manufacturing Industry

Apple's Newton unit now subsidiary - Apple spins off Newton Inc - Company Operations

Electronic News, May 26, 1997 by Cynthia Bournellis

Cupertino, Calif.--Apple Computer last week confirmed ongoing rumors of dumping its Newton division when the company announced that it will turn the division into a wholly-owned subsidiary.

Tentatively named Newton, Inc., the new subsidiary will have separate offices near the Apple campus and its own chief executive, who has yet to be named. Effective immediately, Sandy Benett, formerly VP of the

Newton Systems group, has become the subsidiary's COO. He will run the organization until a CEO is found. About 170 people work in the current Newton division, and most are expected to transfer to the new subsidiary. Managers of the subsidiary will report to a board made up of Apple's top managers and some executives outside the company. The transition is expected to be completed by June 30, at which time the subsidiary will operate on its own.

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Newton, Inc. will focus on developing products and licensing technologies for mobile products. Initial markets will include corporate information systems, health care, sales force automation and field service, according to Mr. Benett. It will also provide platform technologies such as the Newton operating system, software development tools and APIs. The new subsidiary will continue to market the new MessagePad 2000 handheld computer in the retail channel, as well as consider building a version of the new eMate 300 laptop for students for the general public. Both products are based on the Newton operating system and are powered by ARM processors.

Apple has been trying to offload the Newton division for some time.

Rumors had been circulating that Apple had been in a number of acquisition talks with companies including Sun Microsystems. Last

Thursday, Mr. Benett told Electronic News that Apple and the Newton group considered outside funding and several acquisition offers before deciding on the recent strategy.

Apple CEO Gil Amelio has been eluding to a possible spinoff of the

Newton group ever since Apple announced its core business strategy last year. Dr. Amelio in February said he was going to give the

MessagePad 2000 a chance in the market before deciding what to do with the Newton division. Also at that time, Dr. Amelio said that by the end of February, Apple would decide how the restructuring would affect the sale of certain business units, Newton being one of them.

The decision of what to do with Newton had been getting pushed out since March, according to Randy Giusto, director of mobile technology research at International Data Corp. (IDC). "Putting off the decision was just another nail in the coffin. And spinning it off means they were unable to find a buyer, which is too bad, because I'm concerned about what this message will send to the developer community," noted Mr. Giusto.

Apple's biggest nemesis, Microsoft, sees the move as one that will ignite the competitive flame. Said Bob O'Hara, software design engineer for the Windows CE operating system for handheld computers,

"After years of toiling in the vineyard, they have products that are selling well. We'd like to see them become profitable, rather than shrivel up and die. Having competition is a good thing."

Sales of both the MessagePad 2000 and the eMate 300 are expected to bring the subsidiary to profitability within its first year, according to published comments made by Apple CFO Fred Anderson. The division has not shown a profit thus far.

According to IDC, worldwide unit sales of all MessagePad devices in

1996 were only 60,000. "That's not a lot," said Mr. Giusto. "Apple refocused the MessagePad on vertical markets, because it failed miserably through retail." He said that while the eMate 300 has been relatively successful, he hasn't seen them in retail stores. "I can't find one at the CompUSA across the street from us."

Some retailers believe the pricey MessagePad 2000, which sells for

$1,000, presents a risky business proposition. "I don't stock them anymore," said Andy Jong, owner of the Winner's Circle computer store in Berkeley, Calif. "I feel in order to survive, I have to have product that sells for over $1,000. The chances of losing money in the long run are great, because eventually you get stuck with software and add-ons that you can't get rid of." He said another reason why he no longer stocks the MessagePad is because Apple has offered refurbished units for much less than the current $1,000 device.

Observers believe the formation of a subsidiary may bring Apple one step closer to selling it. Meanwhile, the move should allow Apple to focus on its core Macintosh business.

In related news, Apple executive VP of operations George Scalise, who had responsibility for the Newton division, resigned from the company last week to become president of the Semiconductor Industry

Association (see People in the News, page 12).

Manufacturing Industry

Apple's Newton unit now subsidiary - Apple spins off Newton Inc - Company Operations

Electronic News, May 26, 1997 by Cynthia Bournellis

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