Are Internet Devices in Apple's Future?

SAN FRANCISCO (04/19/2000) - Mobile phones that let you send and receive e-mail; Web terminals in your kitchen that can download recipes; cars equipped with on-board computers able to locate restaurants, print out directions, and even help you phone ahead for reservations-devices such as these are either already on the market or at least in the planning stages. They're part of a growing universe of Internet appliances-basic consumer devices that offer easy access to the Internet. And, if one Wall Street analyst proves correct, Apple Computer Inc. could soon join that universe.

In a report issued after a February visit to Apple, Merrill Lynch Computer Analyst Steven Fortuna wrote that he expected Apple to unveil an Internet appliance strategy this summer, possibly at Macworld Expo in July. Such an announcement would add some meat to the Internet strategy Apple announced earlier this year, wrote Fortuna in an earlier report.

Apple's reaction? "That would be speculation," spokeswoman Rhona Hamilton says, "and we wouldn't have a comment on it."

Analysts say Apple may be keeping mum about an Internet-appliance strategy in public. But that doesn't mean the company isn't mulling over such a plan behind closed doors. "They have no intention of getting out of the PC business.

They're very firm about that," says Tim Bajarin, president of consulting firm Creative Strategies. But, he adds, "if you're Apple, you'd be crazy not to look at" developing the Mac OS for another company's Internet device or even producing an appliance.

Consider the potential market. The number of Internet appliances should top 37 million in 2002, reports Jupiter Communications, an Internet-commerce research firm. That's a jump from 1.2 million in 1997.

Compaq, IBM, Hewlett-Packard, and Microsoft have either expressed interest in the Internet-appliance market or started rolling out stripped-down devices. But don't expect other companies to force Apple's hand. Devices such as Compaq's iPaq target the corporate market-not an area that Apple tries to woo, says Gerard, Klauer, Mattison & Company analyst Lou Mazzucchelli.

"Apple's always been a maverick," Creative Strategies' Bajarin says. "I don't expect them to march to [someone else's] drumbeat."

There are other reasons Apple might not pursue an Internet-appliance strategy.

The company already has a successful consumer product-the iMac-that promises easy access to the Internet. An Apple-branded Internet device may harm iMac sales. And after putting its house in order with a series of successful product launches, Apple may want to avoid a Newton-like disaster, Bajarin says.

Still, Apple may decide that Internet appliances make perfect sense. While Internet devices won't ever replace PCs, their sales should skyrocket in the next few years. By 2005, Bajarin estimates, Internet appliances could outsell PCs by as much as a 4-to-1 ratio.

"Apple is the top brand in the world," Bajarin adds. "There's no reason to believe they can't make hay with an Internet device."

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