Anthony Frausto-Robledo EIC ([email protected])

25 May 2005

 

Apple and Intel: Company's Plans for 'Intel-inside' Mac Not Likely

Apple's Discussions with Intel Likely Centered on New Class of Device, Not Macintosh Computers

This week certainly got off to an interesting start with a Wall Street Journal report concerning the possibility that Apple and Intel were in discussions about using Intel chips inside future Macs. While some kind of chip from Intel may be planned for future Macs the likelihood that it would replace the IBM PowerPC chips currently found in Macs is extremely remote.

In this article we'll parse the latest theories and do a bit of reality checking and then offer more likely suggestions and scenarios. We'll start off by stating for the record that the degree of truth in the supposed discussions between these two companies is likely high. In other words, yeah, Apple and Intel are most likely talking about something.

Some Kind of Chip

There are many kinds of chips that Intel makes that could go into a Mac that don't replace the central processing unit (CPU). However, the likelihood that all this ballyhoo is all over an integrated graphics chip or something that pedestrian is utterly ridiculous. Apple is too small a player in the overall industry to let a win with say, Flash memory, mark a tremendous newsworthy event for Intel. No, instead, a newsworthy event -- indeed the scale of which can't seem to keep this insider from trading scoop prematurely -- would require something really special for Intel in particular. And since Apple is not currently shipping the kinds of volumes in the PC market that make much of a headline, it's fair to say that this theory of "some kind of chip" inside of future Macs is not very likely.

That leaves us a couple of options. One of which is in fact that Intel and Apple are talking about the CPU. The other of course is that we are not talking about Macs at all.

Volume Issues - Think Again

Some analysts and journalists are suggesting that if Apple turned to Intel for possible CPU's in future Macs that it would do so because of cost issues. While Apple has always had mild concerns about cost issues with PowerPC processors, these have mostly been driven by volume and R&D issues related to PowerPC chips. In short, Intel sells several hundred million Pentium-class microprocessors each year, while Apple itself can only consume about 3-4 million PowerPC chips split between two different vendors: Motorola and IBM. And other PowerPC customers using computer-oriented chips simply don't add much to Apple's annual order. All of this has traditionally meant that it's cheaper to develop and sell Pentiums for Intel than it is for IBM to produce comparable PowerPC chips.

Now that three very smart companies (namely Microsoft, Nintendo and Sony) have unanimously agreed to base their next-generation game console machines on PowerPC and PowerPC derivative processors from IBM it stands to reason that the great disparity in chip volume between IBM and Intel is going to diminish. The next XBox in particular has three IBM PowerPC chips very similar to the current G5 chip used in Apple's computers. If the company sells 15 million units this first year that will mean 45 million new PowerPC chips for IBM. That's more than 12 times the amount of chips Apple will need from both IBM and Motorola in the same time frame.

When you factor in Nintendo and Sony you can logically assume IBM to be producing somewhere north of 80 million PowerPC and Cell -- which is a derivative of PowerPC -- chips in the next 12-18 months. Now add Apple's need for possibly up to 6 million more PowerPC chips in that same time span. We are now very near 100 million PowerPC chips of the variety that can power standard computing devices. In other words, the volume differential is vastly different.

I think it's fair to say that the cost comparison issue just went away. And if that doesn't satisfy you then consider this: Microsoft purchased over 1000 Apple Power Mac machines for use as development units for those writing programs for the next XBox. That's because the three chips inside the XBox 360 are incredibly similar to the current PowerPC 970 (aka Apple G5). Now if Microsoft stands a chance of competing with the Playstation 3 with its wickedly powerful Cell processor than it better compete on price too. So that means sub $400 machine. And that means three IBM PowerPC processors for a cost reasonable enough to not let Microsoft lose their shirt over the production costs for the new Xbox.

It stands to reason that the three PowerPC chips IBM is making for the next XBox cost Microsoft about $60-85USD each in lots of 1000. The Cell chip would probably cost north of $250 for Sony if the company had to pay that. But since they split the development and manufacturing costs with IBM and Toshiba (which also plans on putting the Cell into millions of TVs) they don't have to pay that much.

So is Apple considering Intel due to cost issues between x86 and PowerPC? If so it can't be because of costs associated with volume or production. It could be due to something related to licensing costs associated with something else.

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