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Gerstner IBM-APPLE MARRIAGE COMPUTES

By Published on .

The solution to problems at IBM and Apple is right in front of them: Merge.

Imagine for a moment computers as easy to use as a Macintosh, backed by the muscle of Big Blue, from a company with two neatly defined brands, IBM in business and Apple at home and school. This merger would deliver what the market is clamoring for-a viable alternative to the computing power of Intel Corp. and Microsoft Corp.

An IBM Corp. buyout of Apple Computer has been on the table before. The idea was presented to IBM early last year by Apple's then-chairman-CEO, John Sculley, when he was on the list to take IBM's top job, Wall Street analysts say.

"It seems to make eminent sense to me," said Bruce Lupatkin, an analyst with Hambrecht & Quist, a San Francisco investment company, and a onetime IBM engineer.

IBM and Apple wouldn't comment about matchmaking schemes.

In the early 1980s, Apple had a lot of mischievous fun at IBM's expense. It didn't take a computer to figure out that IBM was Big Brother in Apple's fabled "1984" commercial introducing Macintosh, or that IBM customers were "Lemmings" in a 1985 spot, both from Chiat/Day, Venice, Calif.

Yet a decade later, IBM is the brains behind Macintosh-quite literally. Inside every new Power Macintosh model is a PowerPC chip, made and trademarked by IBM. This is as if Mr. Sculley had bought soda syrup from Coca-Cola Co. when he was president of Pepsi-Cola Co.

Also, Mr. Sculley cast his chips with IBM and forged two other key alliances before exiting Apple a year ago. Kaleida Labs, one IBM and Apple venture, is working on multimedia software standards for computers and interactive TV. The other, Taligent, is trying to develop a software operating system for powerful computers.

But these loose confederations cannot produce the results-and market clout-that could come from a merger.

Look at the situation now. Compaq Computer Corp. has jumped into first place in U.S. and world PC sales in the first quarter. Compaq succeeds in good measure because it's focused on PCs and has neatly defined brands, and good prices, distribution and advertising. Perhaps most important, Compaq delivers the industry standard: PCs with Microsoft Windows software and Intel-brand or Intel-clone chips.

Microsoft, already the world's largest PC software marketer, late this year is expected to introduce the next generation of its popular Windows operating system. And Intel, which last year commanded 74% of the world PC microprocessor, or chip, market, is aggressively cutting prices to keep its lead.

Apple and its new president-CEO, Michael Spindler, are betting the company on Power Macintosh.

IBM's new chairman-CEO, Louis V. Gerstner Jr., has a great Intel fighter, PowerPC, and powerful software, such as the OS/2 operating system, that offers an alternative to Microsoft. Yet IBM is Microsoft's biggest customer, and all IBM PCs come with genuine "Intel inside" chips or clones.

But imagine the possibilities if IBM and Apple merged. The two companies could take back the No. 1 sales spot with compatible products featuring the PowerPC chip and Apple's famed easy-to-use software standard.

The chips and software could be licensed to other PC marketers, creating a clone market that invigorates competition, innovation and sales.

The deal could also give Mr. Gerstner the ad agency he may have wanted in the first place. Before IBM named Ogilvy & Mather Worldwide in May to handle its $500 million global account, the company approached BBDO Worldwide, Apple's agency. BBDO wouldn't talk because of loyalty to Apple.

Financially, the deal could be done. Apple's stock market value last week was $3.2 billion, less than IBM's annual research & development budget. Would the dream deal fly with antitrust regulators? Why not? Microsoft and Intel still would have more clout in technology even if IBM and Apple merged.

Many observers are quick to dismiss the merger possibility. There would be an insurmountable culture clash, warned Carl Gustin, a former close Apple associate of Mr. Sculley who is now VP-market product strategy and communications at Digital Equipment Corp.

In any case, it's never an easy task to merge two troubled companies. Said David Coursey, editor of P.C. Letter: "As my mother used to say, `Don't marry a woman who has more problems than you do."'

But with so much in common, marriage may be the perfect answer.

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