Apple-Intel Alliance Could Boost Mac Market Share

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In an effort to boost its share in both the consumer and corporate markets, Apple Computer may be doing what some hard-core fans would say is the unthinkable – teaming up with mainstream chip maker Intel.


Ever since Apple launched the widely popular iPod digital music player and the iTunes music downloading service, analysts and investors have been banking on a resulting surge in sales of its Macintosh computers.


But with its computer market share still hovering around 2%,a report in the Wall Street Journal yesterday that Apple could be seriously considering tapping Intel to make its Mac chips has some credibility among industry watchers, who say Apple must take action to reach its goal of boosting Mac sales.


“The idea that there would be a massive increase in Mac sales because of the iPod never made sense,” said Mark Stahlman, an analyst at Caris & Company. “Apple will need to take some bold actions to improve the competitive position of its Macintosh lineup versus Intel-based Windows machines – and adopting Intel could be one way to get there.”


Apple is reportedly in talks with Intel that could lead to Apple using Intel’s semiconductors for its Mac computer line. The report said that while speculation has long abounded that Apple would use Intel’s chips, industry executives say this time, the Cupertino, Calif., computer maker will agree to use them.


A move of this nature would be a departure for Apple, which has long stayed away from Intel-based products, using chips made originally by International Business Machines and Motorola, but now primarily made by IBM.


Officials at Apple, Intel, and IBM weren’t available to comment.


Analysts said Apple may be looking to leave IBM because it lacks low-power chip technology for notebooks, a growing market for consumers and corporations. What’s more, Apple, which used to be the largest volume customer for IBM’s chip unit, is losing its clout to customers like Sony and Microsoft, which could be driving the change. “Apple may be feeling abandoned,” said Caris’ Mr. Stahlman. (Mr. Stahlman does not own shares of Apple and Caris does not have an investment banking business.)


Apple, which has the lowest market share of all the computer makers, also has a small developer base of software programmers. Moving over to Intel would instantly increase that community, said analysts, although they warned that it could alienate some of Apple’s current developer base, who are loyal to the current architecture.


Whatever the rationale behind any alliance between Apple and Intel, one thing is for sure, a move of that magnitude could help boost Apple’s sales of computers by lowering the costs associated with making the chips, thus reducing the selling price for Apple computers.


“Apple has begun to try to compete on price,” said Roger Kay an analyst at market research firm IDC. He pointed to Apple’s Mac Mini computer as one example of a low-end machine. “If Apple adopts Intel hardware … it helps them compete better with the Windows guys.” Still, Mr. Kay noted that Apple will likely still charge a premium because of the design of its computers, which are known for being sleek and appealing to the eye.


Simon Yates, an analyst at Forrester Research, said by using Intel chips, Apple could also get a bigger piece of the corporate market, an area dominated by Dell and associated with higher margins.


“Corporate buyers want consistency of components. They don’t like to have proprietary technology,” said Mr. Yates, noting that using Intel’s standardized chips could enable Apple to penetrate areas of the corporate market outside of graphics and publishing. “The most important thing it [an alliance with Intel] does is create an opportunity for Apple to move more aggressively into the corporate environment,” he said.


Shares of Apple rose $2.21, or 5.9%, to $39.76. Intel gained 15 cents, or 0.57%, to $26.50. IBM shares rose 10 cents, or 0.13% to 76.51.


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