Monday, June 13, 2005

Intel's Apple deal - Why it had to happen

I disagree with Robert Cringely's analysis that the Apple/Intel deal is aimed at Microsoft. I think the move has a far simpler and more transparent objective - it's Intel's obligatory response to IBM's provocative assault on its turf.

IBM has been making a lot of noise lately about popularising the PowerPC and positioning it as a more generic processor that is suitable for consumer workstations as well as for servers. Needless to say, this is a head-on assault on Intel territory. Intel makes its biggest margins on server chips like Itanium and Xeon, but its biggest revenues come from workstation chips like Pentium IV and Celeron. AMD is already costing them sleep in this market. The last thing they want is another commodity chip here.

The AMD genie will not be so easy to put back in the bottle, but PowerPC can possibly be nipped in the bud (Nice mixing of metaphors there ;-).

Q. Who's the largest non-IBM user of PowerPC chips?
A. Apple.

So, strike a deal with Apple and pay them whatever it takes to move to an Intel hardware base. True, that's not much of a market share gain, - barely three percent, as Cringely points out. But the move is not so much about gaining market share as it is about stemming a future loss.

It's about positioning PowerPC where Intel wants it - as an IBM-only chip that no one else will touch. Once Apple is taken out of the picture, the only significant users of PowerPC will be IBM's own pSeries and iSeries divisions, which hardly counts as industry endorsement. HP will stay loyal to the Intel architecture, as will Dell. Acer and the second rung of OEMs will do likewise. Lenovo, not being a division of IBM, will see no market reason to sell PowerPC-based consumer workstations. As long as there is no PowerPC port of Windows, there is really no mass market there.

At a single stroke, Intel has put PowerPC back in its box. The only way PowerPC can ride back into the consumer workstation market is on the back of Linux, but that's a market where it already plays and where it has made virtually no headway against Intel and AMD.

Compared to the future revenues salvaged by stemming the advance of PowerPC, anything that the Apple deal must have cost Intel is probably chicken feed.

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