Apple Laces Up Its Wing Tips

The new Xserve server signals a shift toward corporate sales

Time was, Apple Computer Inc. (AAPL ) Chief Executive Steven P. Jobs thought he could unseat mighty Microsoft Corp. (MSFT ) But for years, he fought a losing battle against the march of Windows-based hardware into corporations. Today, thanks to missteps by Apple and cutthroat competition from rivals such as Dell Computer Corp. (DELL ), the only apples at most businesses arrive in a brown bag.

Now, Jobs has realized that if he can't beat 'em, maybe he can at least co-exist with 'em. With the launch of a new, ultra-thin server computer on May 14, Apple wants to once again make a run at Corporate America. Apple's goal in the fiercely competitive market: to offer the lowest prices on the best technology available. That's a twist for a company that typically charges premium prices. This time around, though, Apple knows that making headway into businesses will be especially tough, since relationships with PC suppliers were established long ago. Low prices may be the only way Jobs can inch in. Customers already are signaling their doubts. "We've got a [server] system that's already working well for our Windows machines, so why would we switch?" says Jeff Brown, a spokesman for games maker Electronic Arts Inc.

Apple execs insist doubters will be swayed by its servers, which in addition to being low-priced are easier to use and more robust. Its first salvo in the battle is Xserve, a $3,000 machine that is less than two inches thick, can handle Web computing tasks at blazing speeds, and shifts easily between Windows and Apple's Macintosh files. A similarly equipped Windows server would cost some $5,000, says researcher IDC. Key to Apple's strategy: Its new servers are based on ultra-reliable Unix software, which corporate buyers know and trust. "We have an incredibly powerful tiger under the hood," Jobs says.

Apple could use some tiger power. Despite a string of hit products such as the iMac desktop and iPod music player, Apple's market share has been shrinking for years. Last year, Apple's shipments fell to 2.6% of the worldwide PC market, from 2.9% in 2000. Apple's sales increased 4% in the first quarter this year, but profits slipped by 7% due to shortages of key components.

Apple's foray into corporations is meant to offset the company's PC market-share slide. Sure, Apple wants to sell servers. But equally important will be sales of its iMac and other desktop machines once its sales reps get their foot in the door at businesses. "The key for Apple is it's a one-stop shop," says analyst Tim Deal at research firm Technology Business Research Inc.

A second leg of Apple's move into corporations is a new version of its Mac operating system, code-named Jaguar, due out in late summer. It will contain software that makes it easier to link Macs to all networks, including Windows, as well as consumer devices of any make. And, to complement its server offering, Apple late this year plans to introduce a storage machine that can hold 1.68 terabytes of information--enough to house 10% of the Library of Congress.

The trick will be to get potential customers to overlook Apple's poor track record in the corporate sector and give its new products a try. Apple's 1996 foray into high-end servers met with dismal results, amid complaints about the machine's reliability. At the time, Apple was "in a coma," Jobs admits. Tim Bajarin, president of technology researcher Creative Strategies Inc., says competitors are the ones who are asleep at the switch if they're not worried. Since 1997, Bajarin says, Jobs has churned out a string of innovations such as smaller, lighter machines sporting snazzy designs, which have forced competitors to play catch-up. Apple also should benefit as established enterprise computing companies, including Hewlett-Packard Co. (HPQ ) and Oracle Corp. (ORCL ), develop software for its servers. It's a good start. The only question is whether it's enough tiger power to get Apples arriving at offices in white boxes rather than brown bags.

By Cliff Edwards in Cupertino, Calif.

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