Apple's Chief in the Risky Land of the Handhelds
By John Markoff
SAN FRANCISCO, Aug. 18 � It has long been Silicon Valley's favorite guessing game: What is Steven P. Jobs going to do next?
The question is particularly engrossing as Apple Computer prepares to introduce the new version of its Macintosh OS X software operating system.
There are signs that, with the new version of the Macintosh OS, Mr. Jobs, Apple's founder, chairman and chief executive, may be approaching a precipice like the one that led to the downfall seven years ago of the man who was then Apple's chief executive, John Sculley.
Mr. Sculley's great tumble came after he staked his and Apple's reputation on the ill-fated Newton hand-held computer � an ambitious product based on handwriting-recognition technology that was ahead of its time. And now come signs that Mr. Jobs means to take Apple back to the land of the handhelds, but this time with a device that would combine elements of a cellphone and a Palm-like personal digital assistant.
Mr. Jobs and Apple decline to confirm those plans. But industry analysts see evidence that Apple is contemplating what inside the company is being called an "iPhone."
Among the evidence, they say, is recent behind-the-scenes wrangling between Palm and Apple over linking Palm's own devices to Apple's new operating system � apparently with little cooperation on Apple's part.
Analysts also cite Apple's deal with Pixo, the tiny company that designed the software for Apple's popular iPod MP3 music player; that deal includes a license for Apple to use Pixo's software with a second product.
And analysts note that the presence of a variety of features in the new Macintosh OS software that would make more sense in a hand-held device than a desktop computer.
"When you connect the dots, you end up at a phone," said Charles Wolf, a financial analyst who follows Apple for Needham & Company.
Compared with the Newton, which was delivered prematurely in 1993 to a market not yet ready for such products, Apple's new device would reach a field in which other companies have already plowed the ground � including giants like Microsoft, Nokia and Motorola, as well as start-ups like Handspring and Danger. This crowded field could pose risks for Apple, if its product were seen to fall short of the competition.
And yet, entering an already established market could give Mr. Jobs the opportunity to show off his and Apple's vaunted innovation and marketing skills.
Certainly, Apple's push into the market for a hand-held communicator would be an abrupt departure for Mr. Jobs, who continues publicly to disavow talk of such a move. But analysts and people close to the company say that the plan is under way and that the evidence is manifest in the features and elements of the new version of the Macintosh operating system.
Mr. Jobs � who was a co-founder of Apple and handpicked Mr. Sculley as its president, only to be forced out by him in 1985 � returned five years ago when the company was on the brink of collapse.
In a remarkable turnaround effort, Mr. Jobs has taken pains to distance Apple from the Sculley-Newton legacy. He canceled the Newton soon after returning and has pooh-poohed the industry's personal digital assistants as "junk" and worse.
Behind the scenes, though, Mr. Jobs has been actively exploring the computing world beyond the desktop. Soon after he arrived back at Apple, for example, he attempted to buy Palm for $1 billion, according to a Silicon Valley executive familiar with the offer. Palm rejected the idea, this executive said.
Now, with the release of the newest version of the Macintosh operating system, Mr. Jobs appears intent on taking Apple itself into the hand-held market. The move would play into Apple's so-called digital hub strategy, in which the Macintosh desktop computer is the center of a web of peripheral devices.
The highly anticipated Macintosh OS X, Version 10.2, which began shipping on the company's newest computers last week, will go on sale for existing Macintosh users on Saturday. While the software is being marketed as an improvement for desktop computer users, it could have just as big a future in powering a yet-to-be announced Apple hand-held computer-phone.
Mr. Jobs continues to be coy. He insists that he still dislikes the idea of the conventional personal digital assistant, saying that the devices are too hard to use and offer little real utility. But a telephone with personal digital assistant features is another matter.
"We decided that between now and next year, the P.D.A. is going to be subsumed by the telephone," he said last week in an interview. "We think the P.D.A. is going away."
And even while protesting that the company had no plans to introduce such a device, he grudgingly acknowledged that combining some of Apple's industrial design and user-interface innovations would be a good idea in a device that performed both phone and computing functions.
A look at the laundry list of features in the company's new version of OS X indicates that a computer-phone is much more than a vague idea for Apple.
Of the 12 new OS X features the company has been emphasizing on its Web site, most would be desirable for a hand-held phone, including chat capabilities, mail, an address book, calendar features, automatic networking and a synchronization feature that will become available in September.
And several of the features, including the company's handwriting-recognition technology and Sherlock information-retrieval program, would be much more relevant to a small, portable device than to a desktop computer.
Sherlock in particular has been repositioned in a way that would make it a perfect counterpart for a portable phone. Its original purpose, which was finding files and content on the computer's local disk, has been transformed into a more general "find" utility program. Now, Sherlock is being extended to search for types of information like airline and movie schedules and restaurant locations. The software can display maps and driving directions.
But details of the plan are unlikely to emerge from Mr. Jobs or his team before Apple is ready to introduce a new product. The company, which in the 1980's and 90's was known among reporters as "a ship that leaks from the top," is now obsessive about guarding the secrecy of its future products.
All Mr. Jobs would say on the matter was that the cellphone computers already on the market fall far short, and that some of the user-interface and industrial design touches already evident in the iPod would be perfect for an improved, consumer-friendly version of such a product.
An Apple phone could be a particularly tempting product for Mr. Jobs, giving him the opportunity to overcome Mr. Sculley's largest failure. He could also rectify the Newton's single biggest shortcoming: the device's inability to communicate easily with the Macintosh desktop computer. Apple has already begun offering Bluetooth local wireless networking technology for peripheral devices, a feature that would make it simple to share information between a phone and a computer.
Furthermore, the cost of adding phone capabilities to palmtop computers is falling rapidly.
"It's easier and easier for a company like Apple to go to a Taiwanese manufacturer for wireless telephone components," said David Carey, chief executive of Portelligent, a technical market research company based in Austin, Tex. He said the parts required for adding advanced cellular capabilities to a device now cost as little as $50.
Of course, that is why Mr. Jobs's greatest challenge with an iPhone might be elbowing his way into a crowded marketplace, where other companies already have supplier and manufacturing relationships in place.
"There's no question that Apple could design a cool phone," said Andy Neff, a Bear, Stearns analyst in New York. "The key is being able to build an infrastructure."
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