• The Apple/Intel Report: Oil and Water?

    December 31st, 2005

    I still remember the scene at the WWDC keynote where Steve Jobs and Intel CEO Paul Otellini embraced. It was all show business of course, a symbol to show the spirit of cooperation between the two companies. It doesn’t mean the two hang out Friday evenings at one of the local pubs in Cupertino or Mountain View to share a brew.

    In any case, there’s been plenty of speculation, reasoned and otherwise, as to just how this relationship might continue over the long haul. Of course, nobody can really tell, other than to observe the histories of the two companies. Now Apple is infamous for being difficult with the companies with which it does business. The fact that they come back for more abuse clearly indicates that they still appreciate the payments Apple provides for their products and services.

    But, according to long-time industry analyst Rob Enderle, Intel is not so sweet on its partners either. He writes that “Intel tends to make decisions critical to the success or failure of the OEMs without adequately taking into account the needs of these companies.” Now it’s clear that nobody dares dictate terms to Steve Jobs, and he is no doubt going to attempt to prod, incite and strong arm Intel into delivering its latest and greatest parts to Apple ahead of the rest of the pack. Sure I’m speculating, but I think I’m on solid ground here. Jobs wants Apple to be ahead of that large group of Intel OEMs that includes Dell, HP and countless other PC makers. It doesn’t matter that Apple is not nearly as big a customer.

    At the same time, what terms is Apple going to demand for standing first in line? Will it pay more for the chips? Hardly. It would expect to get the same deal as the rest of Intel’s customers, perhaps even better for the “privilege” of doing business with Apple. What about the advertising subsidies that Intel provides for participating in the famous Intel Inside program? Yes, when you see that little logo at the end of a broadcast spot, Intel is paying part of the bill. Is Apple going to succumb to the temptation of the extra ad dollars? Enderle doubts it, but I’m not so sure. I can see where Apple might get some perverse satisfaction in having that little element tacked on to ads for a new line of Macs.

    In fact, I can see it now, at the Macworld Expo keynote. Assuming all the predictions come to pass, Jobs introduces Intel-based iBooks and Mac minis. I’m not quite as confident about a PowerBook, although it’s possible Apple will begin to take orders for late February or March delivery. No matter. The first commercials for these new products appear, and they climax with the Intel Inside stinger. The crowd roars with approval. Really! There may be a couple of boos and hisses here and there, but I think most of you will enjoy the turn of events.

    I suppose Enderle is right, though, that Apple and Intel are going to have a rocky relationship. However, I expect it’ll last regardless. Intel has been after Apple’s business for years, and Otellini and the rest of the key executives at Intel know full well what they’re getting into. The Apple/Intel partnership provides the latter with a level of prestige it doesn’t get from any other OEM. So long as Intel provides the parts Apple wants, even if the delivery follows a few screaming matches on both sides, it’s not as if Apple is going to go back to Freescale Semiconductor and Motorola as alternate suppliers. There’s no turning back here.

    But it’s not as if Apple doesn’t have alternatives. Jobs went to Intel because Freescale and IBM didn’t deliver the goods. On the other side of the processor industry, there’s also AMD. I doubt very much if Jobs has any exclusive deal with Intel, and there’s nothing to prevent it from writing a check to AMD if it offers a better deal and speedier processors. In fact, if you read the published benchmarks of PC’s using the best Intel and AMD parts, quite often the latter comes out ahead. That equation might change with Intel’s new product introductions in 2006 and 2007. I suppose the PC magazines will let us in on the test results when computers with the most powerful Intel chips begin to ship.

    If AMD emerges victorious, just how will Apple react? Will Jobs become upset that he cast his lot with the wrong supplier, or does he know something we don’t? Has he already seen the comparisons deep within Intel’s development labs to demonstrate that he chose the right supplier? Perhaps.

    Regardless, the developments in 2006 are going to be fascinating. Unfortunately, a lot of what happens may actually transpire behind the scenes, and we’ll be left, as usual, with rumors and speculation.

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