Wednesday, May 25, 2005

Intel Inside Apple?

Steve Jobs must be getting fairly bent out of shape. About 11 months ago, he promised users a 3GHz PowerMac G5 would ship within a year; just about every month since he’s had disappointing news for the Mac faithful. The root of the problem lies in IBM’s ability to produce the faster chips with thermal properties that don’t require sophisticated (read: expensive) liquid cooling systems to keep them from spontaneously combusting in users’ offices. Perhaps less dangerous but equally disturbing is the glaring lack of chips that has choked the supply chain of Apple’s second most popular product line.

So, the rumor mill does what it does, spitting out timely talk of Apple climbing into bed with Intel. The story goes that Apple would get access to new Intel dual-core processors and vastly better thermal properties (which would finally allow Apple to turbocharge their PowerBook line) while Intel would get an implicit endorsement from the trendsetting Apple evangelists. But this isn’t the first time these two giants have flirted. As recently as 2002, Jobs let fly speculation that Intel might have a chance at getting inside Apple. But the situation then was different; IBM was still trying to win chip business from Apple and the move seemed designed to tilt the field in Apple’s favor.

With the benefit of hindsight, we know what has transpired. IBM was successful in tying the next version of the Mac operating system (the completely new OS X) to its PowerPC 970 processor, only to bear the brunt of a very rare outburst from Apple’s PR department. In 2004, Apple publicly blamed Big Blue for the disappointing sales of the G5; they even went so far as to delay the launch of a new iMac because of IBM’s inability to meet chip demand. There is widespread speculation that IBM hasn’t been focusing on Apple lately, instead spending their time and energy on the “Cell” processor that will debut in the forthcoming Playstation 3.

So is Apple really serious about ditching IBM? The street has mixed feelings (surprise, surprise). Analysts are neatly carved into two camps, those who believe this is all game-playing designed to send IBM a message, and those who don’t. The skeptics (strategists?) point to the difficulty associated with porting an OS to a new platform (for the uninitiated, porting means re-writing software to run on a different chipset) and the massive tangential effort in recoding all of the existing OS X software. They say that this talk is designed to re-focus IBM and get better PowerPC chips out of the factory faster. Insiders suggest that the in-development 970MP (a dual-core version of the Mac’s brain) and the all-important 3GHz clock speed announcement are closer to market than many think, facts that could placate Apple enough to quit talking about Intel.

Others think that a marriage between the two industry opposites could produce some pleasant synergies. Intel would love to call Apple a customer, and Apple could use to take some power away from their sole chip supplier. New beta products from Intel could push prices for Apple’s products into the mainstream, allowing them to compete more effectively with the likes of Dell and HP. And there might not be a better time to move; Intel is a company in transition, with Andy Grove’s departure marking the end of the old-school era at the chip maker.

But does Apple even care to compete in the ultra-competitive personal computer industry? They’ve carved out a nice niche of die-hard fanatics and graphics professionals with a very high willingness to pay. The problem has been their ability to get those consumers the products they want. There exists a somewhat symbiotic relationship between Apple and the PC world insofar as the differences in platform are small enough to allow users of each to collaborate but large enough to ensure that the cost of switching between the two stay high. So long as Apple continues to serve the part of the market that will pay for their highly styled, high performance machines, they’ll continue to escape retribution from PC manufacturers interested in keeping costs and prices low.

A move to an Intel-based platform could change that dynamic somewhat dramatically. If Apple moves to cheaper Intel processors, they run the risk of spoiling one of the world’s premier brands and alienating their user group, which is nothing if not hardcore. They could also find knock-off Macs flooding the market once key hardware components are available freely, further damaging profits and forcing Apple to fight a counterfeit battle they have thus far avoided. When it comes down to it, Apple isn’t in the PC market so much as they are in the “electronic lifestyle” market, where differentiation (Think Different, remember?) is key to their high margins.

Most likely these rumors are just that; strategically timed volleys over the bow of IBM’s corporate ship. Apple made a move in 2001 to a linux-based kernel so that future threats of flight would have some level of credibility. They aren’t in a position to give up the user base and continued growth opportunities offered by complementary products like the iPod any more than IBM’s flagging chip business is to let Apple go. What this comes down to is Apple not wanting to play second fiddle to Sony, Toshiba, and the PS3. Mac users want faster, cooler machines and Steve Jobs wants to sell them. The hope is that the possibility of losing Apple’s business will get IBM back to toeing the line, and fast.


J. C. Groon
Kevin Hardy
Amrit Sahasranamam

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