Friday, September 12, 1997

IBM, Motorola abandon manufacture of Macintosh clones

By Tom Quinlan and Jodi Mardesich / Knight-Ridder Newspapers

Apple Computer Inc.'s relationship with its two key partners of the past six years -- IBM and Motorola Inc. -- is in disarray, the result of its decision to drastically restrict cloning.

IBM has given up its rights to the Macintosh operating system, sources close to IBM said. Motorola is expected to announce plans to do the same Thursday, meaning it no longer will manufacture its own line of Macintosh clones. The moves are part of wide-ranging plans by the two companies to restructure their long-standing partnership with Apple.

As negotiations continue, they are being complicated by the fact that most of the decision-making power at Apple these days is in the hands of "minister without portfolio" Steve Jobs, a man known for making abrupt decisions that often reverse established policies.

But while the elimination of clones is something Jobs wanted, it is not clear the same is true of the fallout. Particularly dicey, according to sources, are tense negotiations under way with Motorola about its future as the key supplier to Apple of the PowerPC microprocessor, the chip that's currently the heart of the Macintosh.

Motorola and IBM have been Apple's partners since the trio entered a path-breaking covenant in summer 1991, known as the AIM Alliance, to jointly develop processors and operating systems to combat Microsoft Corp.'s and Intel Corp.'s growing influence. But the alliance failed in its mission, and now appears to be crumbling.

Thursday, for example, Motorola likely will announce that it intends to stop making its own version of Mac clones -- known as the StarMax line -- and that it will no longer supply other manufacturers with hardware designs and the Mac operating system, sources close to the company said.

Sources close to both IBM and Motorola claim that Apple's latest decisions to dramatically restrict the clone market have violated the basic covenants of the AIM Alliance. As a result of the Mac's shrinking marketplace -- and uncertainty about the Cupertino, Calif., company's future direction -- both companies want to redefine their contractual obligations regarding design and manufacture of the PowerPC microprocessor.

Although Apple's agreements with individual clone makers -- such as Power Computing Corp., which accepted a $100 million buyout of its licensing agreement from Apple last week -- were beyond the scope of 1991 AIM Alliance accords, sources familiar with the contracts said Apple backtracked on two key elements that were first agreed to in 1991 -- that it would furnish technology to make available a Mac clone based on industry standard parts and that it would certify for cloners those systems, which later became known as the Common Hardware Reference Platform.

Both IBM and Motorola say they will continue to furnish Apple with the PowerPC processors for as long as necessary, but manufacturing of the processors themselves is likely to be done solely by IBM in the future, with Motorola still helping to design the processors.

The two companies will also give up attempts to maintain parity with Intel Corp.'s increasingly powerful processor line, sources said.

Motorola and IBM together will instead focus much of their efforts on jointly developing a line of embedded controllers based on the PowerPC architecture for use in such devices as automobiles, phones and TV set-top boxes. Both companies do that separately now.

"The market has changed dramatically since the first agreements were signed," noted one source close to IBM. "At the time there was the expectation that there would be a thriving clone business that would grow the market for PowerPC microprocessors. There really doesn't seem to be a need for two manufacturers of the PowerPC processor now."

Analysts said economic realities were forcing the repositioning of the PowerPC.

"In 1993, there were 4.3 million 68K processors (the chip used in Macintosh systems before the PowerPC) used in computer systems," said Michael Fiebus, founder of the market research firm Mercury Research in Scottsdale, Ariz. "In 1996, 3.8 million PowerPC processors were used in computers. And Motorola only gets half of those sales."

But the renegotiations are taking place in an increasingly acrimonious atmosphere, sources said.

Apple, at Jobs' urging, is demanding steep discounts of as much as 50 percent on the newest PowerPC processors being developed by IBM and Motorola, sources close to the chip manufacturers said, and is threatening not to accept shipments of those processors unless the prices are dropped dramatically.

Apple is also considering moving most of its design efforts to computers built around different microprocessors, possibly from Intel.

Apple's hardball tactics have led to similar posturing from Motorola, which is using its ability to withhold processors from Apple as leverage, sources close to Motorola said.

Both sides are expected to back away from their most extreme positions, but the demise of the Macintosh clone strategy and Apple's attempts to rewrite the processor contracts have caused IBM and Motorola to question what kind of relationship it can have with the leaderless company.