Apple buy-out fails to stop rot as performance dives

It has been a disastrous new year for Apple. As well as admitting to a massive decline in market share, it has warned analysts to expect an operating loss of $100m (#59m) to $150m for the first quarter of this financial year.

The bad news dampened the euphoria generated by Apple's $400m purchase of Steve Jobs' NeXT Software on the 20 December.

Apple last week revealed that its share of the desktop computer market had slumped from 9% to 5% in the space of three quarters.

Following the company's profit warning on Monday, Apple's shares plunged by $4 to $17.5, a third below their level a year ago. Even more damaging was the news that total income, in what is traditionally its busiest quarter - the first - would be 10% lower than in the same quarter the previous year.

Further layoffs are likely as Apple's chief executive Gil Amelio vowed to knock another $1bn off operating costs this year to bring them down to a 'break-even level' of $8bn.

'The NeXT acquisition will contribute to this cost-reduction process,' said Amelio, prompting speculation that the layoffs will come in Apple's R&D division. Apple laid off 4,000 staff in 1996.

Analysts and customers barely had time to take in the NeXT purchase before the bad news broke. While the return of prodigal father Steve Jobs to the company he co-founded was widely welcomed, the move failed to disguise what had become an increasingly desperate search by Apple to replace its defunct Copland operating system strategy.

Amelio dropped out of talks with another Apple alumnus, Jean Louis Gasse, because he wanted too much for Be Software. Amelio then paid four times as much ($400m) for NeXT, justifying the purchase by claiming the company is 'a going concern'.

But going where? The acquisition gave analysts the chance to glimpse the previously private world of NeXT's finances and find that the company has not made a profit in three years. Apple wants technology from NeXT, as well as access to those few corporate customers who have swooned over the innovative technology in NextStep.

Analysts are betting that this acquisition marks Apple's move away from hardware and into mainstream software as it will sell operating systems, development software and applications that will run on a variety of platforms.

Clive Longbottom, a Meta Group analyst, commented: 'Apple will continue to support the Mac but it will not put dollars into it. The Mac is a legacy system, Windows is the mainstream.'