Apple's switch to Intel puts it in tough spot

Troy Wolverton
San Jose Mercury News

SAN JOSE, California -- Apple Computer's switch to Intel chips puts the company that once promised to think different in a tough spot: How different can it be?

The company had little choice when it made the move earlier this year. Its previous reliance on PowerPC chips left it with increasingly uncompetitive hardware and dwindling market share.

And the decision seems to have paid off: in recent quarters, Apple's computer sales have vastly outpaced the overall PC market, and last quarter the company sold a record number of machines. More importantly, the move seems to have broadened Apple's appeal. More than half the computers Apple sold last quarter in its stores were to customers who were new to Macs, chief financial officer Peter Oppenheimer said on a conference call earlier this month.

But the move has also placed Apple in a tough spot, putting it in the thick of the competitive PC market. For the first time, Apple's customers can now directly compare the specifications of the company's Macintosh computers -- and their prices -- with those offered by Dell or Hewlett-Packard.

Assuming that the company wants to continue to make inroads -- and some analysts question how much Apple really wants its computers to go mainstream -- it's going to have to keep pace with those and other veterans of the cut-throat commodity PC game, analysts say.

"It's not going to be as free and loose for them as it was," said Richard Shim, a PC industry analyst in the San Mateo office of market research group IDC. "They're going to have to change the way they do business."

That could be a good thing for Apple customers, ensuring they continue to have cutting -edge technology in their machines at competitive prices. And Apple will still have its distinctive operating system and software, always seen as key selling points. But playing the upgrade game while avoiding becoming just another PC maker could prove a dangerous challenge for Apple itself, analysts say.

"Apple would be advised to not let Intel drive their product cycles," said Jon Peddie, founder and analyst at Jon Peddie Research, an industry consulting firm based in Tiburon. "If they get lost in the noise of everybody doing the same thing, they've lost their special cachet."

Apple representatives declined to comment. But the company has indicated that for now, it intends to play the PC upgrade game, at least after a fashion.

Earlier this week, for instance, Apple replaced the chips at the heart of its high-end MacBook Pro line of laptop computers with Intel's new Core 2 Duo processors. The move came some six weeks after Intel introduced the chips and followed similar updates from other major PC vendors.

Perhaps more telling of Apple's ambitions -- and the pressures it faces -- in August, when the company rolled out the Mac Pro, its new line of professional desktops based on updated Intel chips, company representatives made explicit comparisons between its prices and those charged by Dell for similar machines.

"People want the latest and greatest technology," said Van Baker, an analyst with Gartner, an industry research firm. "Apple is going to have to be among the leaders in terms of bringing this technology to market if they want to remain competitive in the marketplace."

In the past, Apple could pretty much determine on its own when to plug a chip into its computers. It didn't have to worry about competitors.

But because Intel makes a big show when it puts out a new processor, it will be pretty clear whether Apple has the latest chips. That could be a key factor in luring Windows customers, who have long shopped for computers based on their underlying processors.

Even some longtime Apple customers say they are paying close attention to what chips the company is using. Louis Lam, a San Jose resident and network consultant at Santa Clara-based Taos, has been planning to replace a Macintosh he bought more than four years ago with a new MacBook Pro.

But, he said, "A friend from Intel said to wait until the next chip comes out."

Not every Apple customer is as focused on the chips as Lam is. Jessica Castaneda of San Jose said the Intel chips didn't play much of a factor in her decision to buy a Macintosh. Instead, troubles with her current Windows notebook and her experience with Macs at work prompted her to consider Apple.

The Apple machines "are really user friendly," she said.

As long as Apple is able to keep customers like Castaneda focused on the end experience offered by its computers, rather than the underlying hardware, it should be somewhat insulated from the upgrade game, analysts say. But not entirely, they say.

"They can't be out there with a product on an older chip when Dell or HP has the new chip," said IDC's Shim. "That doesn't mean they have do it when the other guys do it, but there's not going to be as much forgiveness in the market."





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