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What's Inside Intel's Apple Deal?

Apple's announcement yesterday of its defection from PowerPC to Intel should not be considered shocking. So say analysts throughout the industry who are weighing in on the chip shakeup.

Jobs announced the PowerPC-to-Intel transition, which will begin next year, during his keynote speech yesterday at Apple's Worldwide Developer Conference in San Francisco.

He also revealed that Apple and Intel will provide developers with tools to help port code from one chip architecture to the other. Beyond those facts, precious little else was disclosed in terms of the details of the Intel shift.

Intel spokesman Tom Beerman was tight-lipped when asked for more information about the switch, saying only "unfortunately, that's a level of detail we're not providing today." Apple representatives did not return a request for comment.

Insight64 analyst Nathan Brookwood does not see Apple's move to x86 as a particularly significant win for Intel.

"Apple is a highly visible company and its actions always attract more attention than its paltry market share should merit," Brookwood told internetnews.com. "Intel will gain prestige from Apple's move, but the eventual CPU sales [3 million to 4 million units/year] will hardly be noticeable among the 160 million or so CPUs Intel will sell this year."

One of the great selling points of x86 has been that its volumes have helped to reduce cost. Brookwood, however, does not think that the move to Intel will reduce the average selling price of an Intel- powered Mac as opposed to a PowerPC-powered Mac.

"As one of the few customers for PowerPC processors, Apple has always been able to get very good prices out of IBM and Motorola," Brookwood explained. "As one of Intel's smaller customers, its discounts will be small compared to those HP and Dell get. Consequently, I anticipate the prices for Mac hardware will be little changed after the Intel Inside models become available."

In a Merrill Lynch research note released today, the firm expressed interest in how willingly Apple embraces Intel's platform strategy now that Apple is becoming an Intel customer.

"Intel has been aggressive in its efforts to define not just processor architectures, but whole platforms," Joseph Osha, a Merrill Lynch semiconductor analyst, wrote. "The Centrino brand is the most visible manifestation of that strategy. Leveraging Intel's development efforts is one important advantage of buying from Intel, but embracing the platform strategy inevitably means ceding some control over features and product definition.

RedMonk Analyst Stephen O'Grady does not expect Apple to lose developers over the switch. O'Grady noted in his blog that the switch doesn't mean all that much for competing platforms. He wrote that it will, perhaps, make Apple's hardware, and therefore its software, more competitive over the longer term.

"But short term, it's still a closed platform and will compete with Linux and Windows as before. If they'd released OS X to generic x86 gear, that would be an overnight game changer. But they haven't," he said.

According to Merrill Lynch's Osha, Intel can't lose, but it's not going to gain much, either.

"The implications for Intel are positive, but only marginally so," Osha concluded. "At 2 percent of the market, Apple's business is not enough to materially impact our supply/demand analysis. We'll see Intel-based Apple machines shipping in the second half of 2006, but the full impact of the transition will not hit until 2007. End market growth and competition with [Intel competitor AMD] will be more important determinants of Intel's earnings than Apple."