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The Honolulu Advertiser
Posted on: Tuesday, October 31, 2006

Apple faces an Intel dilemma

By Troy Wolverton
San Jose (Calif.) Mercury News

SAN JOSE, Calif. — 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.

Recently, 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."