Posted on 06/09/2005 8:59:01 AM PDT by Ernest_at_the_Beach
The IT industry is yet another arena in life that often resembles high school: One week you and your friends ridicule a girl and the next week you're going steady with her. Which is a little bit like how Apple Computer acted with Intel. For years, Apple has fought hard against Intel-based PCs in the marketplace and once insulted the giant chipmaker by spoofing its ads. Then on Monday, after weeks of speculation, CEO Steve Jobs announced at Apple's developers conference that it would buy chips from Intel instead of from IBM and Freescale Semiconductor (formerly Motorola's semiconductor division) for its Macintosh computers. The transition will take place over two years.
In my column two weeks ago (See Steve Jobs: Souping Up Macs?), I talked about this possibility and discussed several reasons why it would make sense for Apple. The basic point worth repeating is that Apple's competitive advantage is its software, and it has been for some time. I also referred readers to my colleague Brent Schlender's cover story, How Big Can Apple Get?, which dissected the company's software strategy. If software is what matters, then it doesn't really matter much to customers which hardware the software runs on, so long as it runs well. As Jobs said at the conference: "The soul of a Mac is its operating system."
(Excerpt) Read more at fortune.com ...
fyi
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NEWS ANALYSIS
By Peter Burrows
Tougher Days, Bolder Apple
The big switch to Intel chips comes just as a sales streak is cooling. And, says one analyst, "That introduces risk"
Over the past few years, hosannas have been deservedly heaped on Apple Computer CEO Steven P. Jobs for crafting a new Golden Age at the Cupertino (Calif.) company. A string of fresh products, particularly the iconic iPod, have put Apple ( ) back on the map and generated stellar returns. Since the first iPod was introduced, in late 2001, Apple has grown 148%, from $5.7 billion in revenues to a projected $13.4 billion in the fiscal year ending Sept. 30. All that has sent Apple's shares up 305% over the same period.
Now life is about to get a whole lot more complicated for Jobs & Co. For starters, Apple has decided to move from the PowerPC chips made by IBM ( ) and Freescale Semiconductor that have powered its computers for a decade to the Intel ( ) microprocessors found in most other PCs. That transition alone, announced in San Francisco on June 6, presents a massive challenge -- and it's not the only one. The shift comes just as sales growth for both Macs and iPods is poised to slow, raising pressure for Apple to come up with its next consumer hit.
"You can't argue with Apple's ability to execute," says Goldman Sachs analyst David Bailey. "But there are a lot of moving pieces. That introduces risk."
SIMPLY MATURING. Apple can't sustain the blistering pace of recent years, say analysts. While Citigroup Smith Barney expects Apple to rack up sales growth of 63% this year, growth will fall to 13% for fiscal 2006. The biggest reason is the iPod. While Apple dominates digital music players, with a 76% share, the iPod probably won't be the revenue machine it has been.
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See link for the rest of the article.
By Robert X. Cringely
The crowd this week in San Francisco at Apple's World Wide Developers Conference seemed mildly excited by the prospect of its favorite computer company turning to Intel processors. The CEO of Adobe asked why it had taken Apple so long to make the switch? Analysts on Wall Street were generally positive, with a couple exceptions. WHAT THE HECK IS GOING ON HERE!? Are these people drunk on Flav-r-Ade? Yes. It is the legendary Steve Jobs Reality Distortion Field at work. And this time, what's behind the announcement is so baffling and staggering that it isn't surprising that nobody has yet figured it out until now.
Apple and Intel are merging.
Let's take a revisionist look at the Apple news, asking a few key questions. The company has on its web site a video of the speech, itself, which is well worth watching. It's among this week's links.
Question 1: What happened to the PowerPC's supposed performance advantage over Intel?
This is the Altivec Factor -- PowerPC's dedicated vector processor in the G4 and G5 chips that make them so fast at running applications like Adobe Photoshop and doing that vaunted H.264 video compression. Apple loved to pull Phil Schiller onstage to do side-by-side speed tests showing how much faster in real life the G4s and G5s were than their Pentium equivalents. Was that so much BS? Did Apple not really mean it? And why was the question totally ignored in this week's presentation?
Question 2: What happened to Apple's 64-bit operating system?
OS X 10.4 -- Tiger -- is a 64-bit OS, remember, yet Intel's 64-bit chips -- Xeon and Itanium -- are high buck items aimed at servers, not iMacs. So is Intel going to do a cheaper Itanium for Apple or is Apple going to pretend that 64-bit never existed? Yes to both is my guess, which explains why the word "Pentium" was hardly used in the Jobs presentation. Certainly, he never said WHICH Intel chip they'd be using, just mentioning an unnamed 3.6-Ghz development system -- a system which apparently doesn't benchmark very well, either (it's in the links).
So is 64-bit really nothing to Apple? And why did they make such a big deal about it in their earlier marketing?
Question 3: Where the heck is AMD?
If Apple is willing to embrace the Intel architecture because of its performance and low power consumption, then why not go with AMD, which equals Intel's power specs, EXCEEDS Intel's performance specs AND does so at a lower price point across the board? Apple and AMD makes far more sense than Apple and Intel any day.
Question 4: Why announce this chip swap a year before it will even begin for customers?
This is the biggest question of all, suggesting Steve Jobs has completely forgotten about Adam Osborne. For those who don't remember him, Osborne was the charismatic founder of Osborne Computer, makers of the world's first luggable computer, the Osborne 1. The company failed in spectacular fashion when Adam pre-announced his next model, the Osborne Executive, several months before it would actually ship. People who would have bought Osborne 1s decided to wait for the Executive, which cost only $200 more and was twice the computer. Osborne sales crashed and the company folded. So why would Steve Jobs -- who knew Adam Osborne and even shared a hot tub with him (Steve's longtime girlfriend back in the day worked as an engineer for Osborne) -- pre-announce this chip change that undercuts not only his present product line but most of the machines he'll be introducing in the next 12 to 18 months?
Is the guy really going to stand up at some future MacWorld and tout a new Mac as being the world's most advanced obsolete computer?
This announcement has to cost Apple billions in lost sales as customers inevitably decide to wait for Intel boxes.
Apple's stated reason for pre-announcing the shift by a year is to allow third-party developers that amount of time to port their apps to Intel. But this makes no sense. For one thing, Apple went out of its way to show how easy the port could be with its Mathematica demonstration, so why give it a year? And companies typically make such announcements to their partners in private under NDA and get away with it. There was no need to make this a public announcement despite News.com's scoop, which only happened because of the approaching Jobs speech. Apple could have kept it quiet if they had chosen to, with the result that not so many sales would have been lost.
This means that there must have been some overriding reason why Apple HAD to make this public announcement, why it was worth the loss of billions in sales.
Question 5: Is this all really about Digital Rights Management?
People "in the know" love this idea, that Hollywood moguls are forcing Apple to switch to Intel because Intel processors have built-in DRM features that will keep us from pirating music and movies. Yes, Intel processors have such features, based primarily on the idea of a CPU ID that we all hated when it was announced years ago so Intel just stopped talking about it. The CPU ID is still in there, of course, and could be used to tie certain content to the specific chip in your computer.
But there are two problems with this argument. First, Apple is already in the music and video distribution businesses without this feature, which wouldn't be available across the whole product line for another two years and wouldn't be available across 90 percent of the installed base for probably another six years. Second, though nobody has ever mentioned it, I'm fairly sure that the PowerPC, too, has an individual CPU ID. Every high end microprocessor does, just as every network device has its unique MAC address.
So while DRM is nice, it probably isn't a driving force in this decision.
Then what is the driving force?
Microsoft.
Here is my analysis based on not much more than pondering the five questions, above, and speaking with a few old friends in the business. I won't say there is no insider information involved, but darned little.
The obvious questions about performance and 64-bit computing come down to marketing. At first, I thought that Steve Jobs was somehow taking up the challenge of making users believe war was peace and hate was love simply to show that he could do it. Steve is such a powerful communicator and so able to deceive people that for just a moment, I thought maybe he was doing this as a pure tour du force -- just because he could.
Nah. Not even Steve Jobs would try that.
The vaunted Intel roadmap is nice, but no nicer than the AMD roadmap, and nothing that IBM couldn't have matched. If Apple was willing to consider a processor switch, moving to the Cell Processor would have made much more sense than going to Intel or AMD, so I simply have to conclude that technology has nothing at all to do with this decision. This is simply about business -- BIG business.
Another clue comes from HP, where a rumor is going around that HP selling iPods could turn into HP becoming an Apple hardware partner for personal computers, too.
Microsoft comes into this because Intel hates Microsoft. It hasn't always been that way, but in recent years Microsoft has abused its relationship with Intel and used AMD as a cudgel against Intel. Even worse, from Intel's standpoint Microsoft doesn't work hard enough to challenge its hardware. For Intel to keep growing, people have to replace their PCs more often and Microsoft's bloatware strategy just isn't making that happen, especially if they keep delaying Longhorn.
Enter Apple. This isn't a story about Intel gaining another three percent market share at the expense of IBM, it is about Intel taking back control of the desktop from Microsoft.
Intel is fed up with Microsoft. Microsoft has no innovation that drives what Intel must have, which is a use for more processing power. And when they did have one with the Xbox, they went elsewhere.
So Intel buys Apple and works with their OEMs to get products out in the market. The OEMs would love to be able to offer a higher margin product with better reliability than Microsoft. Intel/Apple enters the market just as Microsoft announces yet another delay in their next generation OS. By the way, the new Apple OS for the Intel Architecture has a compatibility mode with Windows (I'm just guessing on this one).
This scenario works well for everyone except Microsoft. If Intel was able to own the Mac OS and make it available to all the OEMs, it could break the back of Microsoft. And if they tuned the OS to take advantage of unique features that only Intel had, they would put AMD back in the box, too. Apple could return Intel to its traditional role of being where all the value was in the PC world. And Apple/Intel could easily extend this to the consumer electronics world. How much would it cost Intel to buy Apple? Not much. And if they paid in stock it would cost nothing at all since investors would drive shares through the roof on a huge swell of user enthusiasm.
That's the story as I see it unfolding. Steve Jobs finally beats Bill Gates. And with the sale of Apple to Intel, Steve accepts the position of CEO of the Pixar/Disney/Sony Media Company.
Remember, you read it here first.
This is actually very good news. It means that Apple will serve a much wider range of customers on industry-standard hardware, Apple will put the final nail in the coffin of desktop Linux (nobody will want that freeware crap when you can run *nix on a shiny x86 Mac), and Apple can now credibly challenge Linux on the server. All in all, this is very good for American business.
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Exactly. The ignorant media (minus guys like Dvorak that predicted the switch in advance) are ignoring the obvious connection to this decision and Linux. That's what caused the switch, everything else in the personal computer market has remained the same, for years and years. But when IBM started putting Unix IP into Linux while at the same time limiting Apple's chips, and it grew to the point that current shipments recently passed Apple and put it in the never before position of being #3, Jobs had to do something drastic. He would have never made the switch if he was still comfortably #2 and felt he could trust IBM as his supplier.
And this change will help Apple battle that front, which is threatening their existence more than Microsoft ever has, Microsoft pumped $150 million into Apple and sells products for the platform, something that is extremely unlikely to ever happen with Linux. And with Apple out from under IBM's thumb, they will get the chips they need to battle IBM in the *nix server market, really for the first time. And with Microsoft in such a dominant position on the desktop, any growth of Linux or Apple in that space will have to come from Windows users, who are in my opinion MUCH more likely to opt for a Mac instead than some funny word they can't even properly pronounce.
Makes sense. Apple keeps BSD under its OS, so it's still beautiful.
But what's the counter? MS hooking up with AMD and entering the hardware market as well? Neither Microsoft nor AMD are going anywhere.
Interesting days ahead.
Man, whatever Cringely is smoking, I've got to get me some. He must be hell on wheels at a party...
I could see the x86 market/platform forking if that happens. Imagine, you're a software maker with a chip fab at your disposal. What couldn't you do, to protect your monopoly market?
Interesting days ahead.
You bet.
Agreed, Intel is far and away top dog in the PC/CPU market, they're not about to risk that by purchasing Apple and significantly shaking things up. It would be risky for any company to buy Apple, too strong of a CEO, and too many fickle customers. More likely is that Jobs may accept a cash infusion from a huge company like HP or Sony, and allow them to co-manufacture Macs, something that would eventually be required if they significantly grow their share anyway. You know they're already dangling those offers in his face, which will only go up from here.
Really interesting,....I'm not sure I buy into Intel buying Apple, but they could easily do it! I like it....consumers win!
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FRIDAY, JUNE 10, 2005
Intel, the world's largest semiconductor company, said Thursday it expects sales to be between $9.1 billion and $9.3 billion for the period ending July 2. That's an improvement from its April prediction of between $8.6 billion and $9.2 billion.
"Demand feels pretty good right now," said Andy Bryant, Intel's chief financial officer. "It's pretty simple."
Analysts said the positive update was expected, and the stock already reflected it.
"The midquarter update is largely, in my opinion, irrelevant for the stock," said Apjit Walia, an analyst at RBC Capital Markets. "What really matters is what it does next (in the third quarter). That trend is what will dictate the stock's fortunes."
Wall Street was expecting sales of about $8.99 billion, according to a survey by Thomson Financial. Though Intel does not provide earnings guidance, analysts estimate a profit of 28 cents per share for the second quarter.
Intel reported earnings of 27 cents a share in the same period last year.
The strength in notebook chip sales isn't a surprise. Earlier this month, the research firm Current Analysis said notebook sales outpaced desktop computer sales in May for the first time in the United States.
Intel has been focusing on improving the performance and battery life notebook PCs since 2003, when it launched its Centrino brand that features a processor, chipset and wireless capability all tuned for mobile use.
Intel isn't the only chip maker to boost its guidance.
On Tuesday, Texas Instruments Inc. raised its second-quarter earnings guidance and narrowed its revenue outlook, citing higher demand for semiconductors and educational calculators.
A day later, the Semiconductor Industry Association boosted its forecast from flat to 6 percent growth in 2005, pointing to stronger demand for personal computers, cellular phones, digital televisions and digital cameras
"Our cautious forecast issued in November of 2004 was based on concerns that high energy prices and lingering excess inventories in a few segments of the industry would dampen sales in 2005," said SIA President George Scalise. "Those fears have not materialized."
Chip makers, including Intel, did briefly suffer from excess inventory in 2004, but the industry quickly recovered. The amount never exceeded $1.5 billion, Scalise said.
That compares with 2000, when semiconductor companies reported $15 billion in excess inventory that took until 2003 to work down, he added.
"Everyone has talked about the industry making a comeback, but I never really thought it was down to begin with," said Stephen Leeb of Leeb Capital Management. "There were certainly inventory issues. But, you had an absolutely blockbuster 2003 and in 2004 you saw reasonable growth - if that's bad, then we'll take it."
In recent weeks, Intel has launched a number of new chips that it hopes will further drive growth and announced that it would supply microprocessors for Apple Computer Inc.'s Macintosh computers starting in the middle of next year.
The announcements likely had little or no impact on the current quarter, but they do suggest the company has maneuvered past the uncertainties of 2004, when it suffered a series of product delays, misfires and cancellations.
Apple CEO Steve Jobs pointed specifically to Intel's future plans as the reason for the switch from Mac chips built by Freescale Semiconductor Inc. and International Business Machines Corp.
Intel also has undergone an executive shuffle as Paul Otellini became chief executive, replacing Craig Barrett who took over as chairman. The changes, which also saw former CEO Andy Grove move to an advisory position, took effect May 18.
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On the Net:
Intel investor relations: http://www.intc.com
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And now they are likely to have some extra cash!
So you believe this is all about getting rid of Linux?
This is more like it. :')
I believe it's about responding to IBM's commitment to Linux, which is threatening most other large O/S vendors including Apple who recently fell to #3 in the number of shipping systems. You have to admit, we're seeing new and before unthinkable partnerships forming against IBM, first was Sun and Microsoft, now Apple and Intel. Things like that don't just happen for no reason, these companies feel threatened by this freeware that is damaging even IBM, much like the "cancer" we've heard it referred to before. IBM is not only laying off thousands of people amid a stock tumble, but recent market data shows HP will soon eclipse them in total server revenue for the very first time. Unless they can drastically turn it around, their current management could find themselves on the way out and their own position to Linux reconsidered. We're seeing that at Novell already.
Faltering Linux results beset Novell
Linux might be loved by those who want something for free, but our software companies are finding it tough going trying to make a living on this no-sales service-only model they were sold on. We could see a huge backlash and more partnering around Windows, Solaris and OSX.
Apple is sitting on a huge wad of cash that Intel could use to finance the acquisition. It's possible. Last I read, Apple was slightly majority owned by institutional investors, the rest by probably Apple fans. Convincing them to give up the stock would be the hard part.
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