[X4U] Forbes [Apple Takes on Intel]

[John Lyon]

[I read this as being somewhat critical. And this statement doesn't sound
right: "Since Mac users are habitual upgraders, many of its traditional
customers will put off purchases until the new Intel-based systems are on
the market." I thought Mac users tend NOT to be habitual upgraders??]

http://www.forbes.com/2005/06/06/cx_ah_0606apple_print.html

Apple Takes On Intel
Arik Hesseldahl, 06.06.05, 1:18 PM ET

Mark your calendars. Today is the day that Apple Computer killed the Mac as
we've known it.

Today, Apple (nasdaq: AAPL - news - people ) confirmed reports that it will
shift away from using chips from IBM (nyse: IBM - news - people ) and
Freescale Semiconductor (nyse: FSL - news - people ) With the confirmation
of the change, Apple is embarking on a transition that could well hurt its
computer sales between now and 2007, frustrate software developers and
ultimately drive loyal customers away from the platform. The news came in a
speech by Chief Executive Officer Steve Jobs at a software developers'
conference in San Francisco.

Switching to Intel may not even save Apple money. "IBM has been losing money
in its semiconductor business," says Shaw Wu, analyst at American Technology
Research in San Francisco. "IBM has given Apple very good price points. I
don't think Apple can get a better price from Intel than its getting from
IBM. The prices at IBM have been competitive with Intel's prices, because
they have had to be."

Indeed, since Apple accounts for less than 3% of annual PC sales, it will
have a hard time competing for Intel's attention from the likes of Dell
(nasdaq: DELL - news - people ) and Hewlett-Packard (nyse: HPQ - news -
people ).

"Every time Apple tries to make a transition like this, many people simply
decide it's not worth the effort to try and keep up," says Nathan Brookwood,
analyst with Insight64, Saratoga, Calif. "The companies behind the PC
platform have paid a lot of attention to stability and backward
compatibility than Apple has."

More immediately, by announcing a transition that is going to take place
during 2006 and into 2007, Apple can't help but hurt its computer sales
during the transition period. In its two most-recent quarters, Apple's
computer sales have accounted for about 46%

Since Mac users are habitual upgraders, many of its traditional customers
will put off purchases until the new Intel-based systems are on the market.
This wariness has happened during previous transitions on the Mac platform,
when Apple was shifting away from its established Mac OS 9 platform toward
the newer Mac OS X. During that period, customers shied away from buying new
systems in part because many important software applications weren't
available for OS X, in part because the new operating system software wasn't
fully baked.

"There is a risk of a buying freeze among established customers and new
potential customers," Wu says.

Then, there's the questions of the developers of the software that has made
the Mac the computer-of-choice for so many devoted users--especially
designers, videographers and everyone for whom style is as important as
substance. Still, many are reserving judgment.

"It can be a big deal," says Adam Fingerman, director of Mac software
development at Roxio, a unit of Sonic Solutions (nasdaq: SNIC - news -
people ), whose products include the Toast line of CD and DVD burning
software. "I'd like to believe that Apple has thought all of this out and
will make the transition as easy for developers as possible. Apple has
already pushed developers through a series of transitions."

Apple certainly has the cash to withstand the hit to its sales over the
course of a year. It had about $3 billion in cash and cash equivalents, plus
another $2.5 billion in short-term investments at the end of the quarter
ended March 26. Plus, there's also the iPod business.

But the iPod is turning out to be more of a seasonal cash cow. The music
player accounted for nearly 35% of sales in the first quarter of 2005, which
included the holiday season. While iPod sales were higher by volume in the
second quarter, they accounted for a smaller percentage of the overall
sales. Apple sold 5.3 million iPods in the quarter for more than $1 billion
or 31% of revenue.

It's also not clear how healthy Apple's iPod sales are in the current
quarter. Reports last week suggested Apple's sales channel was full of
unsold iPod units, which would indicate sales aren't really growing at the
rate anticipated. Still, new models of the iPod Shuffle and the main
hard-drive based iPods were unveiled during the Jobs keynote today.