Two Apples aren't better than one

Analysts not mentioned in TheDeal.com article also found fault with the notion of splitting Apple. Charles Wolf, a research analyst with Needham & Company in New York, called the idea "intriguing" but ultimately discounted it.

Wolf said the proposal to have an Apple Software company make the Mac operating system available for Intel-based PCs would be "risky." He pointed to the disaster Apple experienced in the mid-1990s when it tried to license the Macintosh operating system to clone makers such as Power Computing, Motorola and Umax.

Rather than following Apple's script and going after low-end consumers, the clone-makers went after the fatter margins of the high-end Mac market. Apple's flat licensing fee meant it got no more money from the sale of a pricey clone than it got from a cheap one. Steve Jobs quickly axed licensing upon his return in 1997.

"I question whether any company would be interested in licensing OS X," Wolf said, "if the license fees reflected the gross margin opportunities of each line."

Similarly, Wolf envisioned dim prospects for an Apple Hardware company.

"What I fear is that Apple's brand equity could be dissipated if the company were to build Wintel machines," Wolf warned. "Many current Mac users might be tempted to switch to Wintel Macs."

Tim Bajarin, president of Campbell, Calif.-based Creative Strategies, also didn't envision prosperity for a cloven Apple.

"It is a terrible idea," Bajarin said. "Apple has an edge on its competitors because it controls the OS as well as industrial design, and as they have shown, this is a powerful mix of technology that allows them to be extremely innovative."

Only one analyst offered unwavering support for the notion of splitting Apple in two: Rob Enderle, a research fellow with Giga Information Group, Inc., a subsidiary of Forrester Research, Inc., of Cambridge, Mass. Notorious in the Mac community for his consistently gloomy pronouncements on Apple, Enderle also advocated the idea in Jaffe's article.

"When you are down to 2 percent share and the trend is still in the wrong direction you need to do something before someone asks you to turn out the lights," Enderle said.

Like Jaffe, he doesn't view Apple's ability to integrate its hardware and software as an advantage.

"You could argue the same thing with IBM, but IBM has lost most every standards war against Microsoft and they came to the table with substantially more assets," Enderle said.

As for the risks and disadvantages the two Apples would face, Enderle said the company now already suffers from many of them. On the hardware side, for example, Enderle pointed to how Dell has snatched a significant chunk of the education market from Apple by beating it on price. An Apple Hardware company building Intel-based boxes, he says, would be better equipped to compete with the Dells and Hewlett-Packards.

Another voice in Jaffe's article, Andrew Neff of Bear Stearns & Co. of New York, declined to takes sides on the prospect of dividing Apple. He did, however repeat his prediction, cited by Jaffe and echoed by Enderle, that Apple eventually would migrate to Intel processors from the Power PC.

This prediction is ever more puzzling in the wake of the revelation at the Worldwide Developers Conference last month that Apple's Power Mac G5 was the result of 18 months of collaboration with IBM, and was a key motivation for IBM to build a new $3 billion chip fabrication facility in East Fishkill, N.Y.

Both IBM and Apple said the collaboration is ongoing, with a clear "road map" outlining future advances in the Power PC architecture. If this indeed is true, then a separate Apple Hardware company would make no sense.

But if splitting up Apple as a strategy to grow Apple's business won't work, what will? Are Jaffe and Enderle correct that Apple can't endure if it stays on its present course?

Apple does, in fact have a strategy for growing its business, though it hasn't borne much fruit yet. The company's plan is to appeal to disgruntled Windows users who haven't seriously considered the Mac in the past.

Pieces of that strategy include the "Switch" ad campaign, the "digital hub" concept that aims to make using digital media such as photos, music and home movies as easy as plugging in a wire or clicking on a button.

In short, Apple is selling ease of use, made possible by its hardware/software integration.

The only hitch was getting consumers exposed to the products so they could sell themselves. That's the role of Apple's growing chain of retail stores strategically located in upscale shopping malls.

And there is some evidence this is working. Apple has said that about half of the customers buying Macs in its stores do not already own a Mac.

It's not a radical plan or a quick fix, but over time a continuous stream of innovative products placed in retail stores where non-Mac users can see and touch them could well nudge Apple's market share back up a point or two.

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