Apple

The idea of creating a Mac clone complete with Mac OS X is not a new concept. However, one company is taking its entry into the clone market a step further by opening a retail store in the Los Angeles area.

The new Quo Computer, set to go on sale next week.

(Credit: Quo Computer)

Quo Computer plans to open its first retail location, selling Mac clones, on June 1. This is the first time that I'm aware of that a clone maker will have a storefront to sell its wares. Mac clone companies, to this point, have chosen to sell their systems exclusively on the Web.

"It's exciting. We are trying to stay as close to Apple as we can with our products," Rashantha De Silva, Quo founder, told CNET News. "We are trying to mimic things as much as we can. I'm hoping that Apple sees the value in what we are doing."

Apple was not immediately available for comment on Quo's endeavors.

Apple's approach to dealing with Mac clones to this point has been far from understanding. The company has a long history of protecting its intellectual property and industrial designs through the courts--just ask troubled clone maker Psystar. That's not lost on De Silva.

"They probably will (sue us)," De Silva said. "There are others doing this, but we have a different attitude. There are thousands of people in the 'Hackintosh' market, but many of them are creating bad products. I don't think anyone wins in that environment."

It's this attitude of selling a high-quality product--albeit cheaper than Apple's offerings--that De Silva hopes will appeal to consumers. Quo vows top-notch support for its customers too.

"Our customer service is gong to be up there with Apple's," De Silva said. "Hardware is important, software is important, and support is hugely important."

Quo's systems will come with Mac OS X Leopard preinstalled. You have to agree to the license when ordering the computer for them to install the operating system. But this brings up a longstanding issue between Apple and clone makers.

Apple's end-user license agreement, or EULA, forbids exactly what the clone makers are doing--installing Mac OS X on non-Apple hardware.

"This license allows you to install, use, and run one (1) copy of the Apple software on a single Apple-labeled computer at a time," the EULA reads. "You agree not to install, use, or run the Apple software on any non-Apple-labeled computer, or to enable others to do so."

This is the argument Apple lawyers used to sue Psystar for selling Mac clones over the Web. Apple and Psystar were scheduled to start their trial in November, but Psystar filed for bankruptcy protection earlier this week.

Even with previous clone failures, De Silva is marching on. To start, Quo will offer three desktop systems: the Life Q, Pro Q, and Max Q. While details of the components are not yet available, De Silva said they are looking at Apple's system configurations for guidance.

Pricing has also not been finalized on the desktop machines, but the company is looking to start pricing at less than $900.

While Quo is starting off with the desktop machines, De Silva said it is looking at offering an Apple TV-like media server and a smaller computer similar to the Mac Mini. Plans on those systems have not been finalized.

In addition to having its retail location and Web-ordering system to ship systems worldwide, De Silva said Quo also wants to be involved in the local community and schools. He hopes to work with school boards to get computers in the hands of children and teachers.

De Silva, a Mac user since 1984, said Quo will help switch PC users to the Mac and feels that ultimately, it will help Apple increase its market share. It remains to be seen if Apple will feel the same way.

The Quo Web site is being worked on now and is set to launch next week. The retail store, located at 2401 West Main Street, Alhambra, Calif., will open for business on June 1.

One year ago, an otherwise sleepy April in the Apple universe was turned upside down by a tiny company from Southern Florida, kicking off a real-world Clone War between Apple and Psystar.

It's been a year since Psystar began selling Mac clones in defiance of Apple.

(Credit: Psystar)

Today, the essential question regarding Psystar is unchanged: does the company have the right to sell computers with Apple's Mac OS X Leopard preinstalled, as it has been doing since April 14, 2008? Psystar set off shock waves through the Apple world that week, as an army of journalists, bloggers, fanboys, and detractors set off on a manic search for anything and everything related to the company and its desktops.

Psystar emerged a year ago as a small independent system builder, the likes of which can be found in any medium-size town in the U.S. What provoked the interest and ire of the Mac community was Psystar's decision to ship so-called "white box" systems with Mac OS preinstalled alongside systems with Windows Vista and Linux, in defiance of Apple's licensing policies for that operating system.

Psystar recently updated its flagship product, the Open Computer, and CEO Rudy Pedraza promises that more products are yet to come.

In an interview, Pedraza acknowledged that the past year has been quite a challenge, but he's glad that at least so far, Psystar has been able to provide an alternative to Apple. "(Our customers) are people who would otherwise be unable to afford an Apple computer, and they are just happy about it."

Whether or not Psystar sees another anniversary will depend in large part on legal wrangling in Northern California, far from Psystar's Doral, Fla., headquarters. The litigation between Apple and Psystar appears to be in a bit of a lull as the one-year anniversary passes, with lawyers immersed in the discovery phase of the trial following months of lawsuits and countersuits from both companies.

Apple's stance is pretty clear: the end-user licensing agreement that comes with Leopard forbids the user from installing that operating system on anything other than an Apple-labeled computer. Psystar, on the other hand, is attempting to argue that Apple is abusing its copyright on Mac OS X in requiring the operating system to run on Apple hardware after Psystar unsuccessfully tried to lodge an antitrust defense.

Little has changed on the legal front in recent months, but it seems worthwhile to take a step back and look at how Psystar has, and hasn't, changed the nature of the computer business. First off, Psystar does not appear to have made a huge dent in Apple's Mac business.

I've been using one of the original Psystar Open Computers for almost a year.

(Credit: James Martin/CNET)

Mac desktop shipments have indeed slipped since March 2008, from 856,000 units in the quarter ended March 2008 to 728,000 units in the quarter ended December 2008. But Apple and analysts attributed that decline to three main factors: an aging iMac lineup (refreshed in March 2009), the ongoing shift in consumer preferences from desktops to notebooks (Apple's notebook shipments increased 17 percent over that time span), and the general slump in the economy that took hold in the second half of 2008.

Psystar will not release sales figures, but Pedraza said that sales have exceeded his expectations to date. Pedraza said the company is still planning to release a notebook, but hinted that it might be something more along the lines of a Netbook rather than a full-sized notebook.

What Psystar has accomplished is to prove that a Mac OS computer that was not designed by Apple can deliver a satisfactory experience. CNET was one of the first to order an Open Computer in April 2008, and I've been using that machine as my primary work system ever since with few issues.

It's certainly not perfect: while I've been able to download every update to Leopard released since last April, I have not always been able to download and install updates for Apple application software through Software Update, such as iTunes and iLife. If something goes wrong with the OS, I'll have to venture down a complicated restore process involving a second installation CD that likely contains the magic files Psystar needs to bypass Apple's restrictions on where Leopard can be installed. And needless to say, the Open Computer is not the sort of thing that makes an IT department all giddy.

Still, the Open Computer is otherwise an almost identical Mac experience to the MacBook Pro I use at home. When it comes to reliability and service, Psystar may not be able to compete with Apple, but for people who know their way around a computer, the Open Computer is a Mac.

And that could have huge ramifications for the software industry if Psystar is able to overturn Apple's end-user licensing agreement, which could usher in another Mac clone era just when the operating system's popularity is arguably at an all-time high. The first Mac clone era did not go well for Apple, and it's not hard to see similar problems occurring if the perception of Mac OS X as stable and reliable start to wane as it is forced to interact with hardware for which it was not designed. Already, Psystar imitators such as PearC are trying their hand at the market.

An awful lot has to happen before Apple has to worry about anything like that. Psystar is a clear underdog against Apple, and the trial is not scheduled to begin until November.

But the Little Mac Cloner That Could is a year old this week, and is continuing to sell Open Computers under Apple's nose. How many more years does Psystar have?

Psystar has decided to not let a legal battle get in the way of its product road map.

The company introduced the Open(3) Wednesday, which as the name implies is the third model that Psystar has shipped with Mac OS X preinstalled. As you may also recall, Apple has not taken kindly to Psystar's decision to ship such a product, and the two companies are currently exchanging legal briefs and arguments over whether Psystar has a right to sell Open Computers with Mac OS X.

Psystar's Open(3) is basically the same product as the Open Computer that it replaces, but the company swapped the larger tower chassis found on the first model for a slimline desktop chassis. It costs $599 with a 2.8GHz Core 2 Duo processor, 2GBs of memory, and a 500GB hard drive.

Back in October Psystar said it plans to ship a notebook with Mac OS X preinstalled, but it didn't set a target date and nothing has surfaced yet.

Psystar's new Open(3) is now shipping with Mac OS X preinstalled.

(Credit: Psystar)

Correction, 11:06 a.m. PST: This story initially misstated the day the report was released. It was Friday.

Update at 10:31 a.m. PST, with more information from the analyst report and a chart.

A J.P. Morgan analyst cut his financial estimates for Apple's fiscal second quarter and fiscal 2009 on Friday, pointing to expectations that its iPhone and Mac sales may be weaker than previously anticipated.

Apple fell as low as 7.3 percent in early morning trading Friday to $82.33 a share.

"We are lowering our estimates for the March quarter and beyond," Mark Moskowitz, a J.P. Morgan analyst, said in his research note. "The deepening global downturn is a driver."

Moskowitz lowered his quarterly earnings estimates to $1.01 a share from his previous estimates of $1.02 a share. And he dropped his quarterly revenue estimates to $7.62 billion from $7.72 billion.

And for fiscal 2009, Moskowitz cut his earnings estimates to $4.73 a share from $4.82 a share, and dropped his revenue projections to $32.98 billion from $33.97 billion.

In light of the weakening economy, Moskowitz also cut his estimates for Mac unit shipments to 2.19 million in the fiscal second quarter, down from his previous estimates of 2.39 million.

iPhone unit shipment estimates were also lowered to 3.4 million in the fiscal second quarter from Moskowitz's previous projections of 3.8 million.

"While a lot remains to the March quarter, inputs from our primary research contacts suggest that Mac and iPhone volumes had been trending below our prior expectations," Moskowitz noted in his research note.

Here's a look at Moskowitz's revised estimates for Apple's revenue, unit shipments per category, profit margins and earnings for the fiscal second quarter and fiscal year 2009:

(Credit: J.P. Morgan Securities)

In further elaborating on Apple's product line, Moskowitz notes in his report:

We acknowledge that there could be a channel fill benefit over the next 30-45 days related to the Mac refresh. While this is still a potential, we do not expect any fill period to fully counter the bigger issue of weakening PC demand in general. Apple's desktop line had been the last to be updated, so we think the company could partially offset the weakening demand environment for desktop PCs with potential buzz around new features and price points.

Looking ahead, we expect investors to key in on the iPhone new product funnel. with the Mac refresh out of the way and summer approaching, it is our view that investors expect a June launch of the next iPhone. We expect Apple to follow the iPod expansionary course with the iPhone over time. In other words, refresh the original form factor in the first two years or so and then introduce newer form factors. While only conjecture on our part, we expect the next iPhone addition to be a smartphone but one with a smaller footprint. We do not expect too much fluctuation in the feature set or pricing, though.

The analyst also cut his price target on Apple's stock, predicting it will hit $100 a share by the December period, versus his earlier prediction of $102 a share.

Psystar is pursuing a new legal argument in its uphill fight against Apple.

(Credit: Psystar)

Psystar is still tilting at legal windmills in its battle against Apple, this time asserting its right to do whatever it wants with products obtained legally from Apple.

After a judge rejected Psystar's antitrust argument--considered its best chance of continuing to sell its Open Computers with Mac OS X preinstalled--the Florida clone maker was allowed to amend its claims against Apple to include other arguments. It has already suggested that Apple is abusing its copyright on the operating system, and now it plans to argue that since Psystar legally purchased its copies of Mac OS X from Apple and resellers, it has the right to do basically whatever it wants with that software under the first-sale doctrine.

Computerworld spotted court filings to that effect submitted by Psystar last week. Here's a key passage:

Once a copyright owner consents to the sale of particular copies of a work, the owner may not thereafter exercise distribution rights with respect to those copies. See, e.g., Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350-51 (1908) (recognizing more than 100 years ago the concept of first sale and the limitations imposed upon a copyright owner in light thereof). Psystar acquired lawful copies of the Mac OS from Apple; those copies were lawfully acquired from authorized distributors including some directly from Apple; Psystar paid good and valuable consideration for those copies; Psystar disposed of those lawfully acquired copies to third-parties.

The problem with this argument is that courts have rarely agreed that the first-sale doctrine applies to software, considering software a product that is licensed, not sold, and can therefore have restrictions attached. There was a case involving Adobe that concluded otherwise, but for the most part courts have tended to side with the software developer.

Apple and Psystar are scheduled to meet next week to discuss the case and the latest arguments.

Psystar is now trying to argue Apple is abusing its copyrights in prohibiting the use of Mac OS X on non-Apple computers.

(Credit: Psystar)

Having run into a roadblock in its attempt to fire back at Apple, Psystar is changing tactics.

Court filings this week (click here for PDF) indicate that Psystar is dropping its argument that Apple is violating antitrust laws--which Judge William Alsup has already rejected--in favor of a new argument that Apple is abusing its copyright on Mac OS X to stifle competition. The Mac clone maker is attempting to stay in business against long legal odds by trying to convince a court that Apple's licensing policies for Mac OS X are unfair and illegal.

From the filing:

Psystar alleges that by virtue of Apple's leveraging of copyrights in the context of Apple's EULA, spurious litigation via the DMCA, and various other anti- and unfair competitive conduct, there is no viable alternative to the purchase and use of Apple-Labeled Computer Hardware Systems for users who wish to use the Mac OS, for a prospective buyer of the Mac OS, or for a user of an older version of the Mac OS.

Psystar further argues that Apple includes code in Mac OS X that causes "kernel panic" if that operating system is installed on anything other than an Apple computer. The company knows this, of course, because it has to bypass those checks in order to get Mac OS running on the Open Computer.

The idea behind the new complaint is that other parties have successfully argued that copyright abuse can have the same effect as antitrust behavior even if the strict tests needed to assert antitrust conditions are not met. But as with Psystar's other legal claims, it could be a long shot.

Apple and Psystar will argue the merits of the new complaint on January 15 in San Francisco before Judge Alsup.

Is another company backing Psystar's Open Computer? Apple wants to find out.

(Credit: Psystar)

Apple has amended its lawsuit against Psystar to allow for the possibility that other parties are backing the company.

When companies file lawsuits, they'll often tack something like "John Does 1-50" onto the list of defendants, in order to allow for the possibility that other parties to the case who have yet to be discovered could be added at a later date. Apple did not do that the first time it filed suit against Mac clone maker Psystar, but has tacked such a paragraph onto an amended copy of its lawsuit against the company, as noted by Groklaw.

On information and belief, persons other than Psystar are involved in Psystar's unlawful and improper activities described in this Amended Complaint. The true names or capacities, whether individual, corporate, or otherwise, of these persons are unknown to Apple. Consequently they are referred to herein as John Does 1 through 10 (collectively the "John Doe Defendants"). On information and belief, the John Doe Defendants are various individuals and/or corporations who have infringed Apple's intellectual property rights, breached or induced the breach of Apple's license agreements and violated state and common law unfair competition laws. Apple will seek leave to amend this complaint to show the unknown John Doe Defendants' true names and capacities when they are ascertained.

It's always been a bit puzzling to ponder how Psystar emerged seemingly overnight with designs on challenging one of the tech industry's richest companies, retaining one of Silicon Valley's star law firms along the way. And it made ambitious, expensive claims, such as attempting to argue that Apple was in violation of antitrust law by refusing to license Mac OS X.

With that claim having been shot down by a judge, Psystar appears to be on borrowed time. There's no evidence that has surfaced tying Psystar to anything but the Pedraza brothers of Southern Florida, but if the company is forced to shut down, Apple may try to go after any person or organization that backed Psystar in an attempt to recover damages.

Apple also tacked on a DMCA (Digital Millenium Copyright Act) claim onto its complaint this week, alleging that Psystar is improperly modifying the code that prohibits upgrade copies of Mac OS X from being installed on anything but a Mac that has a previous version of the operating system already installed.

Psystar's Open Computer might be an endangered species after its antitrust claim against Apple was dismissed Tuesday.

(Credit: Psystar)

A federal judge has tossed out Psystar's antitrust lawsuit against Apple, one of its most important avenues to remaining in business.

Judge William Alsup of the U.S. Federal Court for the Northern District of California rejected Psystar's argument that Apple uses anticompetitive practices to prevent companies from selling computers that run Mac OS X, according to court documents spotted by AppleInsider. Psystar can amend its complaint in order to try to convince the judge that it has a better argument, but it has only 20 days to decide whether or not it can overcome the judge's decision.

Psystar has been selling Mac OS-based computers since April, but is under attack in the court system from Apple, which filed a suit against the company in July. Psystar in turn filed its own antitrust complaint against Apple, which some legal observers thought was the company's best chance of winning the dispute and staying in business.

But Alsup was not convinced. He rejected Psystar's argument that the relevant market in this case consisted of a single product: Mac OS. "The pleadings...fail to allege facts plausibly supporting the counterintuitive claim that Apple's operating system is so unique that it suffers no actual or potential competitors," he wrote in his opinion (click here for a PDF copy).

If Psystar fails to come up with a better argument, its counterclaim will be formally dismissed and it will have to get ready to defend itself against Apple's claims that it is infringing on Apple's copyright material and trademarks.

Psystar is working on a Mac OS-based notebook that will round out its Mac clone product line.

Mac clone maker Psystar will soon have a Mac OS X-based notebook to join its desktop products, such as the Open Computer seen here.

(Credit: Psystar)

A company representative confirmed a message sent to an AppleInsider reader indicating that a Psystar notebook using Mac OS is in development, although it's not clear when it will arrive. Psystar has of course been selling Mac OS X desktops for over six months, much to the chagrin of Apple's lawyers.

Building a notebook, however, is a very different undertaking than a desktop. The average person reading this article could slap together a desktop PC while watching a football game on a Saturday afternoon, using off-the-shelf parts from an electronics store like Fry's. And there has always been a thriving market for so-called "white box" desktops built by local shops such as Psystar and distributed to small businesses.

A comparable market does not exist for notebooks. Most notebooks are almost completely assembled by system builders in China or Taiwan, and then distributed by big companies once the final build is complete. Some places sell so-called "barebones" notebooks, but very few people seem to be interested in building their own notebooks.

However, PC companies sure are. It's an old story that virtually all the growth in that market has come from notebooks over the past two or three years, and just this week IDC announced that notebook shipments have overtaken desktops in the U.S. market for the first time in the history of the industry.

I e-mailed Psystar CEO Rudy Pedraza wondering if the company is assembling a notebook in-house or whether they have struck up a relationship with one of the big contract manufacturers in Asia. I didn't hear back immediately, but I'll update this post when and if he returns the message.