Newton: Will What Fell Down Go Up?

Call it a reality check for Apple Computer Inc. Or call it a second chance for Newton, the much-bally-hooed personal communicator the company introduced last year. Either way, Apple is in the midst of a massive overhaul of its Personal Interactive Electronics group--a unit formed to lead its charge beyond personal computers and into new businesses. The end result: what insiders are dubbing a "new, economy-sized PIE" aimed at getting Newton sales moving again.

Since early June, Apple has quietly streamlined PIE, laying off 50 workers, about 20% of the unit's workforce. It has shelved PIE projects, including a version of a larger Newton and a planned multimedia player code-named "Sweet Pea." PIE's languishing interactive-TV efforts have been shifted to other divisions. And its eWorld on-line service, launched on June 20, will be spun off into a separate company by October, with at least two outside investors. Says Chief Financial Officer Joseph A. Graziano: "We're making some tough decisions and trade-offs."

No argument there. Until now, PIE has been the emblem of Apple's bid for new markets. But its first foray, Newton, has been less than a bell-ringer. It was launched last August as a new category of consumer-electronics device, a so-called personal digital assistant that can keep schedules and volumes of data and send out faxes and electronic messages--all from just about anywhere. But critics lampooned Newton's iffy handwriting recognition and $699 price.

"A DISASTER." So, Apple regrouped. Last spring it introduced a new version of Newton, at $499 to $599, that had greater battery life and addressed some of the handwriting problems. The MessagePad 110 is doing better than its predecessor, but sales have been disrupted as buyers have exchanged models for the new one.

All told, Apple says it has sold only 90,000 units--far below even the most conservative estimates of 150,000. Says Walter Manley, president of First Step Computers, a six-store retail chain in Maryland and Virginia: "I'm not saying Newton is dead, but so far it's been a disaster." Graziano, who is heading PIE after General Manager Gaston Bastiaens left abruptly last April, concedes that Apple "can't help but feel disappointed, at one level. But that doesn't mean we're backing away."

How much has PIE cost Apple so far? Graziano won't discuss the unit's financials other than to say it will not be profitable this year--as Apple executives once promised--but should be by the second half of 1995. Other insiders say the unit lost nearly $50 million in the fiscal quarter that ended Apr. 1.

The drain comes as Apple struggles to shift from its 10-year-old Macintosh computer line to new, speedier Power Macs. Initially, Power Mac sales were glowing: 145,000 units shipped in the first month after the March debut. But since then, buyers' ardor has cooled as they wait for more new Power Mac software. Analysts now say Apple will ship only 200,000 Power Macs this quarter vs. prior estimates of 300,000. Partly as a result, they figure Apple's earnings fell by more than half in the just-ended quarter, to just $42 million on revenues of $2.1 billion.

VIRTUAL REALTY. In the midst of this crunch, Graziano is redoubling Apple's efforts to make Newton a long-term success. The strategy: to spin it as a practical, handheld device for mobile business professionals. To lure corporate buyers, Apple is providing software-development tools that make it easier and faster for companies to create customized software. Also, the $599 top price is half that of most handheld computers now used by field workers. Apple also is shifting distribution to 70 resellers that cater to corporate customers.

There already are a few signs that Newton is doing better. CorNet International Ltd., a sales force automation company in Stroudsburg, Pa., is gearing up for a pilot with a large drug company that will put Newtons in the hands of 50 sales representatives. PRC Realty Systems Inc., a McLean (Va.) supplier of computer systems to realtors, is set to roll out Newton software that allows realtors to access property information instantly. The assessment based on tests so far? "In price and performance, Newton has proven to be the best" data-collection device, says Bob Goldberg, PRC's marketing vice-president.

Meanwhile, Wayne Gray, a Claremont (Ill.) corn and soybean grower, is one of about 100 farmers testing Newton in the field--to track plantings, fertilizers used, results, yields, and forecasts of profitability. "It's not perfect," says Gray. "But it's a whole lot better than some of these articles on the negative aspects."

Positive testimonials, to be sure. And if Newton is to be reborn, it will need many, many more.

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