Apple's Newton in doubt again

The Apple Computer (AAPL) group that develops handheld computers based on the Newton operating system may be facing staff attrition and consequently losing development momentum.

The Newton development and management team has recently been hit by a significant number of employee defections to 3Com's PalmComputing subsidiary, which makes the popular PalmPilot handheld computer, according to several sources close to Apple. The Newton Group develops a portable computer called the eMate and a handheld computer called the MessagePad that are based on the Newton OS.

Apple denies that there is any turmoil in the Newton group. "We are satisfied with the success of the Newton group," said an Apple spokesperson. The eMate is doing well and the "MessagePad is doing well too--units are on backorder," the spokesperson added.

But one industry source familiar with Newton group speculated Apple may already have decided to end its dalliance with the technology once maligned for poor handwriting recognition because the company can't afford to support development of the platform. Company observers agreed that Apple may need to take a look at where it puts its research money.

"Apple can only afford a limited number of investment areas. They've got to invest in Rhapsody [Apple?s next generation operating system]. So given their shrinking sales and need to make profits, excess baggage may have to be heaved overboard," said Eric Lewis, analyst with International Data Corporation.

Indeed, the MessagePad, which uses the Newton OS, has not been updated significantly since October of 1996, when the MessagePad 2000 appeared. The newer MessagePad 2100, which came out in October of this year, offered only more memory and a faster network connection.

If Apple were to have to give up on Newton altogether, it could represent the final round of interminable dithering by Apple on whether the Newton technology is of use to the company.

Only this July, Newton was officially spun off as an independent subsidiary with its own management and business plan, but that was before former CEO Gilbert Amelio was ousted from his post and later replaced by Apple cofounder and interim CEO Steve Jobs.

In September, under Jobs direction, Apple reversed course and decided to bring the Newton team back into Apple and create a division for the eMate 300.

The eMate 300 is a Newton OS portable that is mainly sold to education markets. At the time, Apple said that it considered the eMate 300 to be "a major strategic opportunity" and that it would commit resources to the product in order to strengthen its appeal to the education market as well as broader audience.

The decision to bring the Newton back under Apple's control was seen at the time as a result of a new emphasis on network computers for the education market, but since then the company has apparently decided to create NCs based on current Mac hardware and the Mac OS. (See related story)

NCs based on the Mac OS could still run the vast library of educational software written for older Macs, but would also connect to servers running Rhapsody.

Still, the Newton technology may very well survive. One possibility is that Apple could be reorganizing development teams and would fold eMate and MessagePad development into an engineering group that oversees all portable product design. Apple may also try once again to sell off its Newton technologies.

But, again, Apple denies this. "We are not making imminent announcements about the Newton organization," according to the Apple spokesperson.

"That [selling the Newton technologies] is probably not a great move. That seemed one of the promising parts of the puzzle. There is probably more turmoil in terms of management decisions and product decisions than everyone thinks," said one financial analyst, who wished to remain unnamed.