Apple Spinning Off Newton Unit Hand-Held Computer Was A Drag On Company’s Bottom Line

Apple Computer Inc., continuing to pare itself down to its vital core, said Thursday it is turning its unprofitable Newton hand-held computer unit into an independent subsidiary.

The move allows Apple to retain rights to well-regarded Newton technology, particularly for the education market, while buffing up the unit for a possible future sale or stock spinoff.

Apple’s announcement followed months of speculation about its plans for Newton in the wake of its recent major restructuring. The company has cut its work force and streamlined operations in an attempt to reverse stubborn losses and better concentrate on its primary desktop computer business.

“Apple needs to narrow the focus of what it’s doing and execute well to get this company back to growth and profitability,” said Fred Anderson, Apple’s chief financial officer. “And we believe Newton’s future is best served as setting it up as an independent company with independent management.”

Apple plans to set up the subsidiary by the end of June and is looking for a chief executive. The new company, which Apple hopes to name Newton Inc., will be based somewhere in Northern California but not at Apple’s headquarters in Cupertino.

The Newton group’s 170 employees would disappear from Apple’s payroll. Executives said they hoped most would end up at the new company.

Investors appeared to be sitting tight ahead of Apple’s announcement after the close of financial markets. Apple’s stock was down 25 cents per share to $16.62-1/2 Thursday on the Nasdaq Stock Market.

Apple for months had been expected to sell Newton, spin it off or find a partner to help run it. USA Today reported Thursday that Apple planned to form a wholly owned subsidiary.

After a rocky start four years ago, Newton computers have steadily improved, and the latest versions have been admired for their technology. But Apple has not been able to make money with it.

Apple introduced its first Newton MessagePad in 1993. The videocassette-sized device, which took in data through a pen, was Apple’s first major new product line since the Macintosh personal computer.

The company lauded the device as the new wave of computing. But Newton was criticized as underdeveloped, overhyped and overpriced; it frequently misread handwriting, had limited ability to communicate with other computers and cost $699.

Since then, however, Apple has updated the Newton MessagePad several times, improving its handwriting ability, power, memory and communications.