TECHNOLOGY SPECIAL REPORT
Inside Apple's G5 Shift

For most of its first 20 years of existence, Apple (Nasdaq: AAPL) relied on Motorola (NYSE: MOT) for all of its processor development. Then, in 1995, Apple gave birth to the Power Mac family of computers powered by the PowerPC chip, a next-generation processor the company co-developed with IBM (NYSE: IBM) and Motorola. The PowerPC processor put the Macintosh machines on a better-than-even footing with the speed of Intel's (Nasdaq: INTC) newer processors.

Motorola dominated development and production of the G4 chip, which proved a problem for Apple. The chips' clock speed lagged behind that of their Intel and AMD (NYSE: AMD) counterparts, and too often chip production lagged behind demand.

When Apple introduced the G5 chip at last year's Worldwide Developers Conference (WWDC), blinding speed and 64-bit computing were not its only newsworthy qualities. With the exception of Motorola's AltiVec technology in the new chip, the G5 was and is a wholly IBM production.

Significant Move

"Apple's partnership with IBM makes a lot of sense from a strategic development point of view," Michael Gartenberg, research director for the Client Access and Technologies Group at Jupiter Research, told MacNewsWorld. "Letting IBM do it is a very smart move."

Gartenberg said Apple's genius is in knowing what to do with the G5. "Certainly, Apple will have a lot of say in the direction of the new chip's development."

Although some industry watchers say Apple's decision to vest total development of the G5 processor with IBM instead of Motorola shows a tear in the computer maker's fabric, Gartenberg said that simply isn't the case.

"It makes perfectly good sense. This will allow Apple to focus on its core development of the Macintosh line. It's a good move and certainly not a sign that anything is wrong," he said.

Better Development Potential

Apple didn't dismiss Motorola from the G5, however. The G4 and G5 are different technologies, and IBM was slotted to be the G5's developer, just as Motorola was for the G4.

"Apple hasn't left Motorola. Apple is continuing to use both vendors," said Peter Glaskowsky, an independent chip analyst. "Apple is using IBM for the high-end products and keeping Motorola for the G4 production and for its lower[-end] products."

Glaskowsky said he expects to see the benefit of Apple's production move.

"Over time, IBM will be making faster products. Keeping IBM provides better production," he told MacNewsWorld.

Splitting production and development responsibilities instead of sharing them is actually a good thing, he added. "It's always a good idea to have multiple vendors."

IBM on Fast Track with Chip

To James Turley, principal analyst at Silicon Insider, this is just another chapter in Apple's gradual transition to a single vendor.

"The cries of the Macolytes notwithstanding, Apple doesn't sell nearly enough Macintoshes to justify having two vendors compete over the business. IBM or Motorola can easily produce far more chips than Apple will ever need," Turley told MacNewsWorld.

He reasoned that the decision to go with IBM over Motorola was more than the toss of a coin. Because the Macintosh is a computer and not a router, Turley said he views Apple's goals as more closely aligned with IBM's than with Motorola's.

A Similar Spark

"More logically, you could argue that IBM has more 'computer-like' experience with its own computers and the massive and impressive Power4 and Power5 behemoths. Motorola, on the other hand, focuses on 'embedded' microprocessors for communications, networking, industrial uses and so forth," Turley said.

He compared Apple's decision to turn to IBM rather than Motorola for G5 chip development to a similar situation that arose with SPARC chips.

"A decade ago, there used to be multiple competing makers of SPARC chips for Sun workstations. But Sun sold barely enough systems to keep one manufacturer (Texas Instruments) alive, much less 10 of them. So the number of SPARC vendors dwindled to essentially just one," he said.

A Calculation for Growth

Industry analysts have noted in the past that IBM is extremely committed to the PowerPC. Turley concurred, saying, "The company owns the PowerPC architecture and franchise (which Motorola uses under license) and has many chips in the works."

In his view, at the high end, IBM's Power4 and Power5 processors point the way toward a likely future for PowerPC.

But how will the G5 chip aid Apple's competitive advantage as it makes a serious push into the server market? And how might the move affect a push into the professional and consumer PC arenas as well?

As Turley sees it, the move will position Apple well because the PowerPC chips it uses have been more-or-less competitive with the Pentium chips that PC makers are using.

"This 'processor parity' has been in place for the past few years," he said. "Moreover, PowerPC (along with MIPS) has been a popular architecture for networking and communications devices, so that gives Apple a leg up with any potential networking products. Potential customers are likely already familiar with PowerPC."

Analyst Glitch

Apparently, not all analysts covering chips and server market trends are aware of the Xserve or Apple's Unix-based OS X "Panther" server software. Turley said that, if Apple were to offer servers, it would have to run Linux or some derivative of the Mac OS because Windows is not an option.

"That cuts the potential market significantly, since a lot of customers prefer Windows on their servers, just as many customers prefer Windows on their desktop," he concluded. "Within the Linux realm, however, G5-based systems should be quite competitive."