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Computer industry

Apple Abandons IBM, Switches to Intel Chips: A Seismic Shift in Personal Computing

Strategic Insights

— 2 min read

In a shocking move, Apple has decided to sever its 14-year contract with IBM and Motorola and switch to using chips made by Intel. The decision, announced by Steven P. Jobs at the company's annual developer conference, is expected to have significant implications for the computer and semiconductor industries. Apple's dissatisfaction with IBM's new chips, which do not generate much heat, is a crucial factor in the decision. The transition to Intel chips, which will begin in 2006, is seen as a gamble by industry experts, but it also presents a phenomenal engineering challenge for Apple.

Key Takeaways:

  • Apple's 14-year contract with IBM and Motorola will come to an end, as the company switches to using Intel chips in its Macintosh computers.
  • The decision is a direct result of Apple's dissatisfaction with IBM's new G5 chip, which does not generate much heat and is crucial for notebook computers.
  • The transition to Intel chips will begin in 2006 and is expected to have significant implications for the computer and semiconductor industries.
  • Apple's software developers will need to work hard to make their programs run on Intel chips, a huge challenge for the company.
  • IBM, which has supplied about 50% of the microprocessors used by Apple, will lose a prestigious customer, but not one that is crucial to its sales or profits.
  • The decision underscores IBM's strategic shift away from the personal computer industry and towards other areas, such as video game consoles and server computers.
  • Intel's partnership with Apple will give the company a significant boost in the consumer electronics market, where the Xbox and PlayStation are major players.

Statistics:

  • Apple's notebooks currently use the older G4 chips, made by Freescale Semiconductor.
  • The new Xbox, called the 360, will perform a range of home entertainment functions, such as connecting to the Internet, playing DVD movies, and displaying high-definition television shows.
  • Intel's chips will be used in Apple's Macintosh computers starting in 2006.
  • IBM supplies about 50% of the microprocessors used by Apple, with the remaining 50% supplied by Freescale.
  • The microelectronics business accounts for less than 3% of IBM's revenues and 2% of its pretax income this year.

Sources:

  • The New York Times article published on Sunday, citing industry executives
  • CNET News.com, a technology news service, which reported on Apple's intention to shift to Intel chips starting in 2006
  • The Wall Street Journal, which had previously reported on Apple and IBM's negotiations
  • Richard Doherty, president of the Envisioneering Group, a computer and consumer electronics industry consulting firm
  • Charles Wolf, an analyst for Needham & Company
  • A.M. Sacconaghi, an analyst for Sanford C. Bernstein & Company
  • The Envisioneering Group, a Seaford, N.Y., computer and consumer electronics industry consulting firm
  • Needham & Company, a financial services firm
  • Sanford C. Bernstein & Company, a financial services firm
  • CNET News.com
  • The Wall Street Journal

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