Bob,
Some details on MOT & IBM
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Motorola Issues Unexpectedly Bleak Forecast, Exits Clone Business
Dow Jones Online News, Thursday, September 11, 1997 at 23:48
By Dean Takahashi and G. Christian Hill
Staff Reporters of The Wall Street Journal
Motorola Inc.'s stock plunged 11% after the company disclosed that shutting a computer-cloning operation and weakness in the world paging market would drive third-quarter earnings "significantly lower" than analysts' forecasts.
The wireless telecommunications giant was a leader of the U.S.
technological Renaissance in the 1990s, but it has struggled for 18
months with declining market share in cellular-phone and semiconductor
operations. Major initiatives in advanced wireless telephony, two-way
radio and two-way paging were slow to develop. Now it is disclosing
other problems.
Motorola (MOT) said it is taking a $95 million pretax charge to
reflect the closing of an operation that cloned Apple Computer Inc.'s
Macintosh computers under a licensing agreement. Apple's de facto
leader, co-founder Steve Jobs, effectively ended the company's licensing program last week by demanding much higher fees from cloners, who refused to pay them. Moreover, Motorola said pager sales in China are "experiencing a larger-than-normal seasonal downturn," and paging companies in the U.S. have trimmed their orders to reduce inventories. The company's expense line was also swollen during the current quarter by its share of the losses of Iridium LLC, a satellite cellular phone start-up, and by increased costs of its attempt to enter the flat-panel display businesss. The businesses added $20 million to expenses, compared with the second quarter.
Christopher Galvin, Motorola's chief executive officer, said
additional charges may be levied against fourth-quarter earnings as thecompany reviews development programs and businesses "that have not lived up to expectations."
...............
Motorola's problems with Apple are expected to spill over to
International Business Machines Corp., which sub-licensed Apple's Mac
technology to other computer makers. Joseph Guglielmi, head of the Motorola group that designs Macintosh-compatible computers, said in an interview that Motorola would stop developing all new Mac clones because it hasn't come to terms for a license for a new version of Apple's operating system. Motorola had been the No. 2 Mac cloner, behind Power Computing Corp., Round Rock, Texas. "This is the end of a long and arduous negotiation with Apple," Mr. Guglielmi said. "We're disappointed. The practical effect is that Apple is going to go alone. They will have to provide all the new innovation themselves." In a conference call, he didn't rule out litigation to recover some development costs, but such an action is unlikely given that Apple is by far the biggest customer for its microprocessor line, accounting for as much as 10% of that line's sales.
An individual close to IBM said it will announce shortly that it will no longer license Apple's Mac operating system. IBM didn't build its own clone machines but negotiated sub-licenses with Power Computer, which Apple has agreed to buy, and Japanese computer maker Akia Corp. and Taiwan-based Tatung Ltd.
"We're pulling out of licensing and sub-licensing of the Mac OS," the individual said. "There is disagreement at Apple over whether clones are a good idea or not and that is removing the business case for IBM to be in that business."
The cloning reversal may have a longer-term effect on the alliance of Apple, IBM and Motorola to build the PowerPC line of microprocessors as an alternative to Intel Corp.'s dominant Pentium line. The alliance has failed to develop new operating-system and multimedia software, and some analysts assert it is unraveling in the chip area as well.
"We are very skeptical about the PowerPC in long-term computational
markets, as we are about Apple," said Nathan Brookwood, an analyst for
Dataquest Inc. in San Jose, Calif. He expects Apple to eventually switch its software to run on Intel-based chips, which power 95% of the world's PCs. Mr. Jobs has denied Apple will move off the PowerPC.
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