Business
Power to the People
With its cheaper, faster Macintosh clones, Austin’s Power Computing hopes to bring the high-tech revolution to the masses.
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Kahng’s approach to business is an outgrowth of his upbringing. He was born in Seoul six months before the Korean War began to a housewife and a professor of mechanical engineering who managed to support his family comfortably despite wartime shortages. “We were relatively rich by Korean standards thirty years ago,” he says—but certainly not by American standards, as he discovered when he came to the U.S. with his family at age seventeen. “Americans waste a lot,” he says.
After earning a master’s degree in computer engineering from the University of Michigan, Kahng began designing giant mainframe computers for IBM in Poughkeepsie, New York. Soon he was trying—unsuccessfully—to clone mainframes for Trilogy Corporation in Silicon Valley. He had better luck with PCs. His Leading Edge Model D, designed for Daewoo of South Korea, was one of the best-selling IBM clones of the eighties and helped make IBM-compatible machines the choice of most computer users. Yet Kahng got only $200,000 for his invention; he had opted for a lump sum rather than royalties. “At the time, I was hoping Daewoo would sell a couple thousand,” he remembers. “I didn’t expect it to be so successful.”
Kahng got rich anyway. As a consultant to other major clonemakers, he was quickly pulling in $3 million a year. But just as quickly, he grew tired of working to make other people successful and wanted to realize his own dream—to build a computer company. To that end, in September 1993 a friend hooked him up with Elserino Piol, the vice chairman of Italy’s giant business equipment maker C. Olivetti and Company, which wanted to build a computer company based on the superfast PowerPC microprocessor. After a chat at a Silicon Valley eatery, Piol chose Kahng as his CEO. A $5 million ante from Olivetti and $4 million of Kahng’s own money provided the start-up capital for Power Computing in November 1993.
Given the crowded IBM clone market, Kahng—who had never even turned on a Macintosh—decided Power would do best to copy Apple’s fabled computer. The problem was, Apple had always refused to license its Macintosh operating system, or OS—the base layer of computer software. But with its share of the personal-computer market worldwide dipping below 8 percent, Apple was in danger of being deserted by software writers and overrun by Microsoft’s hot Windows package. Apple’s precarious situation forced it to take a calculated risk: that any loss of its sales to clonemakers would be offset by licensing fees and an increase in the sale of software and peripherals such as printers.
Kahng began negotiating with Apple in April 1994, but it was a tough sell. Apple was already eyeing bigger-name cloners like Compaq, Motorola, and Zenith. Nevertheless, with help from former Apple engineers, Kahng built a Mac prototype. By November he had designed a clone that was cheaper to manufacture and used off-the-shelf power supplies and monitors instead of Apple’s more expensive components. Both Piol and Apple executives were impressed. And on December 17, 1994, following Apple’s fruitless effort to attract better-known partners, Kahng’s tiny company became the first Mac OS licensee. “We took a risk and jumped in without any real guarantees from Apple, and it paid off,” says Kahng.
The dash to market began with the seven-day workweeks that Kahng had grown accustomed to during his IBM cloning days. A scant four months later Power, with a burgeoning staff of fifteen, introduced the Power 80, 100, and 110 models, which came pre-installed with $1,200 worth of free software (including popular programs like Quicken and ClarisWorks) and undercut Apple’s price by 25 percent. The clones received “very good” to “excellent” ratings from the Mac industry; PC Magazine called the Power 100 “the Macintosh’s identical twin in everything but price.” Then, last October, Power made the leap from cloner to innovator, introducing the PowerWave 604/150—in Kahng’s words, “the fastest desktop PC in the world.”
Now what? Power expects 1996 to be even more frantic than last year. Its cheapest clone yet, the new PowerCurve, with a sticker price of less than $2,000, is about to hit the market. Power plans to become a supplier of parts like circuit boards and possibly even complete computer systems to other computermakers who strike licensing deals with Apple; Kahng says he’d love to see 25 more companies like Power—they would all be potential customers. Later this year Kahng will carry Power’s brand-name recognition overseas to China, South Korea, and other markets that Apple has yet to exploit.
Closer to home, the company is getting unpacked after a big move. With clone production approaching 10,000 machines a month, Kahng relocated his troops in January north of Austin to the town of Round Rock, where he has leased plenty of office and manufacturing space along Interstate 35. This time, there’s carpet on the floors, windows in some offices, and enough room for Power to triple its work force, as expected, by year’s end. Just up the road is Power’s new manufacturing operation, a refurbished factory floor in a rust-colored motor plant where the enormous magnets for the supercollider were to be built. Power will be able to produce nearly three times the number of PCs a month it currently produces.
With such success, of course, come questions. Where will Power get the money it needs to finance its rapid growth? Last June a group of foreign investors, including Olivetti, South Korea’s LG Group (formerly Lucky Goldstar), and Japan’s ASCII, brought the company’s total financing up to $13 million. There is also the possibility of a stock offering. Kahng and Hirvela say they’re in no big hurry to go public, although they have met with investment bankers from several firms. “At this point, we’re more than sufficiently funded,” Hirvela says.
Could Apple abandon its licensing strategy and pull the plug on Power by refusing to grant it a license for Copland, the next generation of the Mac operating system? Not likely. While none of Apple’s licensees are guaranteed the rights to Copland, Apple’s vice president of technology licensing, Lamar Potts, says there is no reason why Apple wouldn’t license to Power again. “They’ve proved to be a good ally for us,” he says.
And what of the competition? None of the other Apple licensees (Radius and DayStar Digital in the U.S. and Pioneer Electronics in Japan) presently pose a threat to Power, but success breeds imitation—and a satisfied Apple now says it will license the Mac operating system almost to anyone who wants it. “You’ve got to believe bigger players will enter the market at some point,” says analyst Scott Miller of Dataquest, a leading Silicon Valley market research firm. “By then, Power will have to be big enough to survive.”
Kahng isn’t worried. He expects his company will be worth $1 billion in five years. “Dell,” he beams, “took ten years to hit $1 billion.”
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