Proposed Fee Hikes Sour Apple Licensees
Apple Computer has surprised makers of clone machines and strained its uneasy alliance with IBM by proposing steep increases in licensing fees for the struggling computer manufacturer’s operating system.
In recent months, Apple has proposed raising licensing fees by as much as 10 times the current rates, which vary widely but are typically about $50 per machine, industry sources said.
The fee hikes were expected to be the topic of meetings scheduled to take place Wednesday between Apple and IBM executives.
A source familiar with the negotiations said IBM executives were taken aback by the proposed increases and consider them “prohibitive.” An executive for another company that licenses Apple’s Macintosh operating system had a similar appraisal.
“Some of the early discussions involved irrational plans that would have made it foolish to participate in this business,” the executive said.
An Apple spokesman acknowledged that the Cupertino-based company is “working to redefine” its relationship with licensees, but stressed that it is not trying to push clone makers out of the market.
“We see licensees continuing to play a prominent role for the Mac [operating system] platform,” spokesman Russell Brady said.
The risky move is seen as a sign that the struggling company is concerned that makers of clone machines--computers that feature Apple software but are made by other manufacturers--have been too successful in taking bites out of one of Apple’s few profit centers. Apple’s market share fell to 5.2% last year from 7.9% in 1995.
Last month, Apple announced 4,100 layoffs, a $155-million charge for the quarter and projected revenue of $1.6 billion, down from $2.1 billion. Sales fell 32%, to $2.1 billion from $3.1 billion, and are expected to fall to $7.5 billion this fiscal year from $9.83 billion last year.
IBM, the world’s largest computer manufacturer, does not make Apple clones. But it has key ties to Apple that stem from a relationship forged between the two companies and Motorola six years ago to challenge the industry dominance of Microsoft Corp. and Intel Corp.
IBM supplies more than half of the PowerPC processors used in Apple’s computers and has recently begun selling the same chips to makers of Apple clones. Last year, IBM began licensing the Apple operating system so it could resell the software to other potential clone manufacturers.
One source said the proposed fee increases would not affect IBM’s role as a supplier of processors, a business that accounts for hundreds of millions of dollars in revenue each year. But the source said IBM would frown on fee hikes that could potentially shrink the clone industry.
That possibility has left many in the clone business fretting, including Bruce Berkoff, director of product marketing for Umax Computer, one of the largest makers of Apple clones.
“Umax is supportive of Apple needing to make more money, including licensing the OS,” Berkoff said. “But we want to have a business plan that makes sense for all parties.”
He added, however, that Umax is also in talks with Apple and that he is confident that Apple and its licensees will reach an agreement.
Apple’s operating system has been considered by many to be both the company’s crown jewel and its most poorly managed asset.
The Macintosh operating system’s ease of use attracted legions of new computer users in the 1980s. But until late 1994, Apple refused to let other companies license the software, leaving them little choice but to use Microsoft’s Windows operating system.
Apple’s operating system is expected to undergo a major overhaul over the next year as the company blends its system with software developed by Next Software Inc., a company acquired by Apple last year.
Apple shares eased 12.5 cents to $19 on Nasdaq on Wednesday.
