One Decision: Apple Switches to Intel Chips

The Decision: Apple sees greater risk in staying with IBM’s chips than in aligning itself with Intel.

Steve Jobs delights in surprising people. Still, it was a shocker, given the long history of Apple’s role as the rebellious alternative to Microsoft’s and Intel’s dominance of personal computing, when he announced in early June that Apple will henceforth develop its Macintosh computers around chips from Intel. By the end of 2007, all of Apple’s personal computers will switch from the PowerPC line of processors to Intel’s chips, which have powered the dominant PC architecture since 1981.

The PowerPC has served Apple well. In 1991, Apple announced it would move from Motorola’s 68000 processor family to what would become the PowerPC, a chip that it would design in collaboration with IBM and Motorola. The decision to switch was made in part because complex-instruction-set computer (CISC) chips like the 68000 and Intel’s x86 chips were thought to have run their course, and because Apple wanted to move to a RISC (reduced-instruction-set computer) architecture, which it thought would give it better performance over the long run. For a time, that seemed to be true, though exact performance comparisons between Macs and PCs are difficult to make.

But claims of superiority have become harder to sustain. In the past 10 years, the difference between CISC chips and RISC chips has blurred: though nominally CISC chips, Intel’s most recent Pentiums have many of the design features that gave RISC chips their edge. Worse, the latest generation of the PowerPC used too much power and threw off too much heat to work well in notebook computers, especially the miniaturized notebooks known as subnotebooks, which have very cramped innards. That meant Apple was certain to fall behind in the laptop market, which was faster growing and more profitable than the desktop market. In his remarks on the shift from the PowerPC, Jobs mentioned Apple’s frustration at being unable to offer a notebook version of its G5 Macs.

Jobs saw no imminent solution to the power problem. Future production plans from IBM, which, with Freescale Semiconductor (formerly Motorola’s processor unit), manufactures the PowerPC, apparently didn’t reassure him. In part, that may have been because Apple accounts for just a fraction of PowerPC sales. Because of the power problem, and the uncertainty of IBM’s commitment to the chip, “It was very clear that Apple was in a predicament with the PowerPC,” says Tim Bajarin, president of Creative Strategies, a consultancy in Campbell, CA. As Jobs said in June, “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.”

Seen one way, Apple’s move to Intel is hardly shocking. Apple has over the past several years moved its PC hardware toward standard components, such as the universal serial bus (USB) and the peripheral component interconnect (PCI). Apple’s products matter not because they use different hardware but because they are elegant. And though most people attribute much of the Mac’s elegance to its operating system, Apple could be moving toward making it possible for a Mac to be loaded not just with Apple’s operating system, but with Windows as well; once the Mac is using an Intel chip, it will probably be able to run Windows in native mode. Current Mac users can already run Windows XP using an emulation program.

Apple’s decision to move to Intel has its risks. Processor transitions are not simple, in large part because they require software migration. But Apple has proven that that’s a problem it can handle. In the early 1990s, it brought its software from the 68000 to the PowerPC, and in 2001, it moved to OS X, a revamped operating system. The biggest risk of the switch to Intel, in fact, has nothing to do with what Apple can do, but rather with what it can prevent others from doing. “Every hacker in the world will try to make the Mac OS run on [PCs],” says Roger Kay, an analyst at International Data Corporation. “If it happened, it would tank their business.” Still, Kay notes that there are ways to prevent the Mac OS from being hacked. Apple is certain to pursue them.

According to Jobs, the first Macs that use Intel processors won’t be available until June 2006, so there’s also the risk of the Osborne Effect–the name applied (perhaps unfairly, given the history of 1980s PC maker Osborne) to the phenomenon of a premature new-product announcement hurting sales of existing products. But Apple has more than $2 billion in cash on hand and a cash cow in the iPod: it can probably weather any short-term losses.

In moving to Intel, Apple is betting that it can improve its fortunes by buying chips from a company that is sure to be focused on PCs for the foreseeable future. IBM, for its part, is moving from the business of hardware to the business of services (see “Research in Development,” May 2005). It could well be that all the major companies involved–Apple, IBM, and Intel–will be better for the move.  – By Michael Fitzgerald