Intel chips help Apple play to its strengths

October 27, 2006, 7:39 AM UTC
Fortune


Imac_1

Troy Wolverton of the San Jose Mercury News, a sharp reporter who was formerly with TheStreet.com, has an interesting piece today about Apple Computer’s challenge to remain an iconoclast even as it embraces Intel processors and grows market share. Though the piece is thoughtful and smart, I take issue with the central premise: that because Apple (AAPL) has adopted Intel (INTC) chips, CEO Steve Jobs will be forced to play the commodity PC game along with Dell (DELL), Hewlett-Packard (HPQ) and the rest of the bunch.

I don’t think that’s going to happen at all.

First, to be fair to Troy, he doesn’t pull this assertion out of his butt — he quotes respected industry analysts as he sketches the landscape. But I think he gets the main thrust of the piece exactly backward. Apple won’t have a harder time differentiating itself from other PC makers now that it has Intel chips. It will have an easier time.

Here’s why:

In the past, Apple suffered because its PowerPC chips had a numerical disadvantage against Intel-based machines. Intel’s megahertz and gigahertz numbers just looked better. Even though Apple tried and tried to combat Intel with marketing, it didn’t have much success.

By switching to Intel, Apple has taken the chip issue off the table. When people are comparing a Mac to a Windows PC, the main things they’ll look at now are design and operating system. Design is clearly one of Apple’s strengths, and its current crop of “Mac/PC” commercials seek to cast Mac OS X as a cooler, more creative, more virus-free platform.

Wolverton also suggests that with Apple on Intel, some of its secrecy will be compromised. People will know that when Intel has a new chip, Apple will build it into its machines. The story says:

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.

If only it were true that Apple could determine on its own when to plug a chip into its computers. Actually, Apple was at the mercy of suppliers who refreshed their chips far less reliably than Intel does, and the uncertainty played havoc with Apple’s customer base — particularly with professional customers. So now, the Intel upgrade game will actually play to Apple’s advantage.

My main contention here is that Apple’s quirky pre-Intel chip upgrades were not helping the company sell Macs. They were hurting. And in an ideal world, chip upgrade cycles have never been the main factors driving Mac purchases.

People have rarely lined up at the Macworld Expo to see what chips Steve Jobs was putting into the latest Macs. Most often, they line up to see new designs, new software experiences, and new peripherals. In fact, when all Jobs does is unveil faster processors, it’s a major bummer.

The switch to Intel is allowing Apple to focus attention on the things it always wanted to be its differentiators: design and software. Those are the things that have allowed the Mac maker to charge a premium for its products, and post margins that are the envy of the PC industry.