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Sunday, June 12, 2005

What's Really Behind the Apple-Intel Alliance - New York Times

What's Really Behind the Apple-Intel Alliance - New York TimesJune 11, 2005
What's Really Behind the Apple-Intel Alliance

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..