What's Really Behind the Apple-Intel Alliance

["David J. Farber" <dave () farber net>]

June 11, 2005
What's Really Behind the Apple-Intel Alliance

By JOHN MARKOFF
SAN FRANCISCO, June 10 - Nearly a quarter-century ago, Apple Computer ran a snarky ad after its 
onetime rival encroached on its territory: "Welcome, I.B.M. Seriously." This week, however, Steven P. 
Jobs had a different message for Big Blue, which had since become a chief ally: "Goodbye. Seriously."

Mr. Jobs, 50, a co-founder of Apple, is famously brash and mercurial. Even so, the Apple faithful - not 
to mention I.B.M. itself - were caught by surprise by Apple's decision to end its 14-year relationship 
with I.B.M. and team with Intel for its computer chip needs.

The buzz that began Monday among developers, bloggers, analysts and Apple followers trying to guess 
Mr. Jobs' true designs has not let up. After all, Mr. Jobs is a legend in no small part because he defied 
the monster combination that is Wintel - as the digerati call the Windows and Intel alliance - and lived 
to talk about it.

Apple's decision in the 1980's to use a different chip from the one put in most personal computers "fit 
in with the idea of Think Different," Stephen G. Wozniak, who founded Apple with Mr. Jobs in 1976, said 
in an e-mail exchange. "So it's hard for some people to accept this switch."

So what could a Macintel possibly hope to accomplish?

Potentially, quite a lot. In striking the deal, Mr. Jobs, Apple's chief executive, has opened a range of 
tantalizing new options for his quirky company.

Many people in the industry believe that Mr. Jobs is racing quietly toward a direct challenge to Microsoft 
and Sony in the market for digital entertainment gear for the living room. Indeed, Sony's top executives 
had tried to persuade Mr. Jobs to adopt a chip that I.B.M. has been developing for the next-generation 
Sony PlayStation.

An Intel processor inside a Macintosh could put the vast library of Windows-based games and software 
programs within the reach of Mac users - at least those who are willing to run a second operating 
system on their computers.

Moreover, having Intel Inside might solve an important perception problem that has long plagued Apple 
in its effort to convert consumers who are attracted to the company's industrial design, but who have 
stayed away because the computers do not run Windows programs.

There is an immediate risk in the tie-up with Intel, however: Mr. Jobs could soon find himself trapped if 
his best customers stop buying I.B.M.-based Macintoshes while they wait for more powerful Intel-based 
systems, which are likely to begin arriving in January 2006.

"There is going to be a long wait," said Mark D. Stahlman, a Wall Street analyst at Caris & Company. The 
power-conserving 64-bit Intel chips that Apple is counting on to rejuvenate its laptop products will not 
be available until early 2007, he pointed out.

In an interview, Mr. Jobs rejected the notion that Apple might suffer from what is known as the 
"Osborne Effect," a term that describes the fate of the computer pioneer Adam Osborne whose firm 
went bankrupt when he announced a successor to his pioneering portable computer before it was 
available.

At Apple's Worldwide Developers Conference on Monday, Mr. Jobs talked of a transition that would 
appear almost seamless to customers. "As we look ahead we can envision some amazing products we 
want to build for you and we don't know how to build them with the future PowerPC road map," he said.

Nothing was seamless about how the deal with Intel came together.

Several executives close to the last-minute dealings between Apple and I.B.M. said that Mr. Jobs waited 
until the last moment - 3 p.m. on Friday, June 4 - to inform Big Blue. Those executives said that I.B.M. 
had learned about Apple's negotiations with Intel from news reports and that Apple had not returned 
phone calls in recent weeks.

Each side disputes what led to the breakup. People close to I.B.M. said pricing was a central issue, while 
Mr. Jobs insisted on stage Monday that I.B.M. had failed to meet promised performance measures.

On stage, Mr. Jobs noted that he had promised both a 3-gigahertz Macintosh as well as a more 
powerful PowerPC-based portable computer, promises that he had not been able to deliver.

In the end, Mr. Jobs was given no choice but to move his business to Intel, when I.B.M. executives said 
that without additional Apple investment they were unwilling to pursue the faster and lower-power 
chips he badly needs for his laptop business.

"Technical issues were secondary to the business issues," said an executive close to the I.B.M. side of 
the negotiations. Because the business was not profitable, I.B.M. "decided not to continue to go ahead 
with the product road map."

But Mr. Jobs disputed this assessment, simply stating that I.B.M. had failed to meet its technology road 
map. The issues in the end, he said, came down to speed and the absence of a chip that consumed less 
electricity than traditional processors designed for PC's.

"As soon as I heard Steve say that the factor where Intel's road map was superior was processing power 
per [watt] I knew right away that it was exactly what I have been reading and saying and so have many 
others, that this is the real key to the future of high performance computers," Mr. Wozniak wrote.

As it happens, Intel's was not the only alternative chip design that Apple had explored for the Mac. An 
executive close to Sony said that last year Mr. Jobs met in California with both Nobuyuki Idei, then the 
chairman and chief executive of the Japanese consumer electronics firm, and with Kenichi Kutaragi, the 
creator of the Sony PlayStation.

Mr. Kutaragi tried to interest Mr. Jobs in adopting the Cell chip, which is being developed by I.B.M. for 
use in the coming PlayStation 3, in exchange for access to certain Sony technologies. Mr. Jobs rejected 
the idea, telling Mr. Kutaragi that he was disappointed with the Cell design, which he believes will be 
even less effective than the PowerPC.

Now that Mr. Jobs has broken with I.B.M., however, Apple is free to pursue a potentially intriguing 
consumer electronics strategy with Intel.

Intel has been looking for ways to get its chips into devices that can compete with game consoles as 
living-room entertainment hubs. In fact, all three next-generation video game machines made by 
Microsoft, Nintendo and Sony are based on I.B.M. chips. And analysts say that both Microsoft's Xbox 
360 and the Sony PlayStation 3, scheduled to arrive next spring, will be positioned as home media hubs 
in addition to being video game machines - and priced far lower than the Intel-powered, Windows 
Media Center PC's that are also aimed at the living room.

Should the new consoles find wide acceptance as broad-based entertainment engines, Intel will need to 
respond - and one attractive alternative would be an inexpensive Macintosh Mini based on an Intel 
processor, able to run the vast library of PC games.

Before he can set his sights on that new market, Mr. Jobs faces the task of shoring up his base, his 
customers and developers. On Monday, he made the case to the software designers who must be 
willing to rewrite their software for the new Macintel world.

Early indications are that he made a convincing presentation.

"The reason people buy Mac is the software, and I think the real fun is yet to come," said Scott Love, the 
president of AquaMinds, a software concern in Palo Alto that sells a Macintosh program called 
NoteTaker used by writers, researchers and students. "We'll be able to develop a program that will just 
work on both I.B.M. and Intel-based computers."

Even more important will be Mr. Jobs' ability to persuade the Macintosh faithful to join him in his 
journey from I.B.M. to Intel. That is where he has an advantage over virtually every other executive.

"He is still committed to the idea of an Apple culture," said Peter Schwartz, the co-founder and 
chairman of the Global Business Network, a consulting firm in Emeryville, Calif. "It is the counterculture 
to the dominant Windows culture."

Indeed, Mr. Jobs has always set himself apart from other corporate executives. After all, which other 
American business executive would have thought to name the holding company for his executive jet 
airplane "Marmalade Skies"?

Steve Lohr contributed reporting from New York for this article..

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