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Apple's High-Water Mark?

by Adrien Lamothe
03/23/2006

This year's Macworld convention in San Francisco showcased Apple Computer's recent metamorphosis. The new Apple is slick, sleek, savvy, and sexy--Silicon Valley meets Hollywood. Apple has gone from the brand of counterculture technological revolutionaries to the brand of the Beautiful People. Steve Jobs has discovered that in an industry characterized by high-volume, low-margin cutthroat competition, one can make a comfortable living creating a marquee brand affordable to those with a healthy amount of disposable income. Never mind that Apple has reduced prices in recent years; when mom-and-pop working-class America compares an Apple with a Dell, the latter usually gets the sale. Other than Apple's core constituency of professional graphic designers, musicians, and die-hard Mac-heads, Apple is left catering mostly to the hip and the cool (and those who aspire to such). To cement this image, Apple partnered with BMW, integrating the iPod music player with BMW stereo systems.

Thus situated at the high end, Apple now finds itself with approximately 2.5 percent of the personal computer market, down from 10 percent a few years ago. Despite this low market share, the company is profitable and enjoys good margins, having reduced production costs and keeping a low head count of talented employees.

Apple's computers have a lot going for them. Apple's new Mac OS X operating system is a well-done Unix-based hybrid that is a joy to behold and use. More importantly, it's largely immune to the security problems that are almost daily news in the Windows world. The slew of applications for Mac OS X are likewise very polished and user-friendly. This has been Apple's hallmark almost from its inception; it started with the Lisa, found acceptance in the first Macintosh, and has continued to the latest incarnation. Apple's Mac OS X is undoubtedly the major differentiator from the competition.

Apple's computers are also reasonably fast: Apple has continually switched microprocessors over the years in its quest for performance, and the recent batch of G5-based Macs have compared favorably with the competition when it comes to raw computing power. In addition to those selling points, recent Macs have captured imaginations with their physical style--sleek, sexy, somewhat industrial, exuding an enigmatic quality. Apple has complemented this with advertising campaigns appealing to the high-energy, intelligent, style-conscious, and somewhat iconoclastic crowd that buys the machines.

Microprocessor Migration

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The big news at this year's Macworld was Apple's switch to yet another microprocessor, this time Intel's new Core Duo, which is basically an extension of Intel's successful Pentium M found in many laptop computers. This was a good move for Apple, but one that belies problems and appears to have created some new difficulty. The impetus for this change was stagnation of the Power 5 microprocessors supplied by IBM. The Power architecture had reached its limit (just like Intel's Pentium 4). Power 5 processors also generate high levels of heat--so much so that they are unusable in Apple's notebook computers. This has been a serious problem for Apple. True to form, it did something about it.

Apple also introduced new software at Macworld, most notably a program called Front Row. Front Row is a control panel for digital media that is accessible from a handheld remote controller. Front Row is the linchpin of Apple's plan to use Macintosh as the centerpiece of personal digital entertainment. Front Row integrates with iTunes, Apple's popular online digital music store. Front Row also lets users purchase and view videos and preview movie trailers online.

Looking beyond the superficial, Apple's switch to Core Duo hints at the challenges a company in its position faces. Although Apple engineers have long been involved in microprocessor design with business partners Motorola and IBM, the company has never produced its own. This leaves it dependent on others for the heart of its systems, a situation familiar to many in the computer business. Apple unquestionably had to progress from the Power processor, which leads to the question, Why Intel?

Enter IBM. IBM has quietly been developing a revolutionary new microprocessor, the Cell, with partners Sony and Toshiba. The Cell appears to be everything IBM has promised, offering a leap in performance--video performance in particular. The Cell has demonstrated the ability to process and output video data in real time. Sony's new PlayStation 3 gaming computer, due for retail release sometime, uses the Cell for its central processing unit. Marketing talk says that PlayStation 3 will be 50 times faster than PlayStation 2. It is undoubtedly significantly faster (more likely by orders of magnitude) than Apple's new Core Duo systems.

New Rivals

Why should Apple worry about a gaming console? For starters, adding a 2.5-inch hard drive, keyboard, and mouse to the PlayStation 3 turns it into a full-fledged personal computer. The real eye-opener is Sony choosing Linux as the operating system for PlayStation 3, breaking away from Microsoft. The PlayStation 3 should initially retail for around $500, an amazingly low amount considering the computer's staggering performance. The PlayStation 3 also enjoys stylish good looks, for which Apple also is famous. Indeed, the two companies have been fierce rivals for the past several years.

Apple appears intent on dethroning Sony as king of consumer electronics. In Sony, IBM has an eager partner, hungry for success against a strong rival. As a company, Sony is a huge multinational with an impeccable pedigree, a track record of success, and vast experience in consumer electronics. This brings back the question, Why Intel for Apple? Why is Apple not using the most revolutionary new microprocessor to come along in many years, one that takes video performance to the next level? The likely answer is, IBM never offered it. Regardless, this will prove to be a big problem for Apple.

Video performance is the lifeblood of those who use computers to process photos and other graphics for a living. Programs such as Adobe Photoshop have long been the killer apps keeping Apple's core customers in the fold. These applications are available for the Windows platform, but most users prefer the friendlier user interfaces found in Apple operating systems. If these applications were ported to Linux, allowing them to run on the Cell processor, graphic professionals would question whether to handicap themselves for the sake of a friendlier user interface. Faster rendering equates to more work performed in the same amount of time, which in turn fosters greater productivity.

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