Apple Sets Internet Strategy; Jobs to Stay on

Apple is taking a stake in EarthLink as part of a multi-year partnership.
Author:
Publish date:

Wall Street was expecting the Internet announcement it got from Apple (AAPL) - Get Report Wednesday, but it got a pleasant surprise as well, as the man who's led the company out of the wilderness confirmed he will continue to lead the rebounding computer maker.

Steve Jobs

, the cofounder and interim chief executive, said in a speech at the

Macworld

conference Wednesday that he is removing the interim from his title and will become full-time CEO. Jobs has run Apple since mid-1997 as its interim CEO.

Apple also said Wednesday that it would invest $200 million in Internet service provider

EarthLink

(ELNK)

as a part of a multi-year partnership between the two companies.

Under the terms of the agreement, EarthLink will become the exclusive ISP in all Apple

MacIntosh

computers sold in the U.S. "We will make it very difficult for you to find another ISP," said Grayson Hoberg, chief financial officer at Pasadena, Calif.-based EarthLink.

Apple and EarthLink, which is in the midst of completing a merger with

Mindspring Enterprises

(MSPG)

first initiated a relationship in July 1998, when EarthLink became the default ISP for Apple; Wednesday's announcement further cements and expands that relationship. "Apple will be taking a much more aggressive approach to converting users to EarthLink customers," said Hoberg.

Wall Street liked the deal. Apple's shares closed up Wednesday 1 1/2, or 1%, to 104, while EarthLink's shares settled up 2 3/4, or 7%, to 44 11/16.

"We think that EarthLink will incrementally get many, many new subscribers," said Ted Broomfield, analyst with

Soundview Financial Group

, who applauded the deal as "fantastic" for EarthLink. Broomfield's company rates the stock a strong buy, and has not done any underwriting for EarthLink.

For its $200 million, Apple gets about an 8% stake in EarthLink; when EarthLink completes its merger with Mindspring, probably in early February, Apple's stake in the new company will be roughly 4%, Hoberg said. Apple will also take a seat on the company's board. Once the merger between EarthLink and Mindspring is completed sometime in March, EarthLink will be the No. 2 ISP after

America Online

(AOL)

.

"The alliance allows both companies to capitalize on each other's strengths while combining the power of the Mac with the power of the Internet," said Garry Betty, president and chief executive of EarthLink, in a statement. "This partnership will bring our industry-leading Internet services to an increasing number of Macintosh users, right out of the box."

Jobs announced the agreement at the MacWorld conference in San Francisco. Jobs also unveiled

Mac OS X

, a completely new version of its operating system software. It also revamped its Web site, at

www.apple.com, to include features called iReview, a Web site review guide and iCards, an electronic greeting card site.

Jobs said overall unit growth for the company's first quarter of fiscal 2000 ending Jan. 1 was 1.35 million. That was 50,000 units more than even the most bullish analysts' estimates. "It's a sign that maybe my bullish earnings estimate for the year isn't so far off," says

Warburg Dillon Read

Charles Wolf, who has a $3.40 estimate for Apple's fiscal 2000. The Street's consensus is $3.19. Wolf has a buy on Apple and his firm has done no company underwriting.