Apple to Spin Off Money-Losing Newton

SAN FRANCISCO — Apple Computer Inc. said Thursday that it will turn its money-losing Newton division into an independent subsidiary, a move partly designed to make the hand-held-computer unit more attractive to potential investors.

The announcement caps months of speculation about what struggling Apple would do with Newton, an innovative but unprofitable division that experts say is only now beginning to live up to the immense hype of its launch four years ago.

Executives said the Newton subsidiary is being set up with funding from Apple but that the long-term goal is to find outside investors in the new company or to sell stock to the public.

“We believe that the time is right to establish the [Newton] group as a focused entity,” said Apple Chief Executive Gilbert Amelio.

Newton will look for a new headquarters near Apple’s Cupertino campus, said Sandy Benett, who has served as vice president of the Newton Systems Group and was named chief operating officer of the new company.

Benett said the company, expected to be named Newton Inc., is seeking a chief executive. He said the company plans to keep most of the 170 employees working in the Newton division but that there could be some layoffs.

Industry analysts said taking a step away from Apple will put Newton in better position to develop new uses for its operating system and to pursue new licensing agreements with other hardware manufacturers.

But a number of obstacles remain, including the recent arrival of a competing hand-held-computer operating system developed by Microsoft Corp.

“As of this year, they’re competing with Microsoft, and that’s a very risky thing,” said James Staten, an analyst at Dataquest in San Jose.

Newton was introduced amid great fanfare in 1993, but early versions of the device were considered too pricey and plagued with glitches, including problems with handwriting recognition.

The Newton division has recently had success with new products, however, notably the eMate, a small, inexpensive computer with a keyboard. That product is targeted at schools and has sold quickly, Apple executives said.

Apple shares eased 25 cents to close at $16.625 on Nasdaq.