February 27, 1998 11:00 AM PST

Apple scraps Newton

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Apple Computer (AAPL) announced today it will discontinue further development of the Newton operating system (OS) and Newton OS-based products, including the MessagePad 2100 and eMate 300.

"Focus is all about saying no. To get [Apple] back on a

The ill-fated eMate 300
The ill-fated eMate 300
growth track we have to be focused on that mission. Newton, although it is a great technology, did not fit that mission," said Fred Anderson, Apple's chief financial officer, in a conference call. The executive noted that the Newton product "has not been historically profitable."

The computer maker said it does not expect to take a charge against earnings because of the decision.

"Apple will continue to market and sell its current inventory of MessagePad 2100 and eMate 300 computers, as well as to provide support for their installed base of users," a prepared statement read.


Analyst Nathan Nuttall on problems in the handheld market
 

The announcement is the final chapter in the Newton's tumultuous history. Introduced in 1993 as the brainchild of Apple chairman John Sculley, the hyped handheld was plagued by poor reviews that pointed to the difficulty in its handwriting recognition capabilities. Even Garry Trudeau lampooned the technology in a "Doonesbury" cartoon series. Beyond the initial snags, the Newton and other Apple handheld technologies never seemed to catch on.

On December 29 of last year, CNET's NEWS.COM reported that the Newton development effort had essentially ceased while the company dithered over making an official announcement to that effect. (See related story)

At that time, Apple had been hit by a significant number of employee defections to 3Com's Palm Computing subsidiary, which makes the popular PalmPilot handheld computer, according to several sources close to Apple.

Apple has shopped the division around in recent months, according to sources close to the negotiations. The company talked to Umax, the only major Mac clone maker remaining, as recently as November of last year, but no negotiations have been held since that time, sources said.

When asked about whether the company had been interested in selling the Newton division to Umax, executives declined to comment, but they did state that they were open to meeting with anyone about selling the technology and that no talks were currently being held.

The Newton Group developed the eMate and a handheld computer called the MessagePad that are based on the Newton OS.

"The Newton OS was probably slipping behind the competition [such as Windows CE and others] in terms of development resources and efforts," said Nathan Nuttall, research director for Sherwoood Research, who thinks the move makes sense as Apple focuses more attention on the Mac OS.

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

In September, under Jobs's direction, Apple reversed course and decided to bring the Newton team back into Apple and create a division for the eMate 300, a portable computer that is mainly sold to education markets.

At the time, Apple said 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 a broader audience. Since then, the company has apparently decided that it is wiser to create portable computers that can run the vast library of educational software written for the Mac OS.

Stating it is still committed to mobile computing, Apple said it will be serving this market with Mac OS-based products beginning in 1999. A number of former Newton employees have been transferred over to the company's portable products division to continue work on portable devices.

These devices will use a subset of Mac OS technologies, much in the fashion that Microsoft has developed the Windows CE operating system specifically for handheld computers.

The decision also leaves Apple the ability to develop hardware based on the Windows CE operating system if it wants, according to Nuttall.

Although Apple basically created the handheld computer category with the introduction of the original Newton, neither Apple nor any other number of companies have had wildly successful products. "To date, handheld computers haven't been a big profit center," said Nuttall, who thinks maybe three companies have made money on the category.

"The market is limping along with spurts of growth as functionality is added, but compared to other technology [such as cell phones and pagers] the growth is pretty lackluster. Apple sees all of this and says they don't have the resources to be all things to all people," he noted.

 

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