Apple to dump Big Blue

Apple is set to announce that it's scrapping its partnership with IBM and switching its computers to Intel's microprocessors, CNET News.com has learned.

Apple has used IBM's PowerPC processors since 1994 but will begin a phased transition to Intel's chips, sources familiar with the situation said. Apple plans to move lower-end computers such as the Mac Mini to Intel chips in mid-2006 and higher-end models such as the Power Mac in mid-2007, sources said.

The announcement is expected today at Apple's Worldwide Developer Conference in San Francisco, at which Chief Executive Steve Jobs is giving the keynote speech. The conference would be an appropriate venue: changing the chips would require programmers to rewrite their software to take full advantage of the new processor.

Apple, IBM and Intel declined to comment for this story.

The Wall Street Journal reported last month that Apple was considering switching to Intel but many analysts were sceptical citing the difficulty and risk to Apple.

That scepticism remains, according to Insight 64 analyst Nathan Brookwood. "If they actually do that, I will be surprised, amazed and concerned. I don't know that Apple's market share can survive another architecture shift. Every time they do this, they lose more customers" and more software partners, he said.

The relationship between Apple and IBM has been rocky at times. Apple openly criticised IBM for chip delivery problems, though Big Blue said it fixed the issue. More recent concerns, which helped spur the Intel deal, included tension between Apple's desire for a wide variety of PowerPC processors and IBM's concerns about the profitability of a low-volume business, according to one source familiar with the partnership.

Over the years, Apple has discussed potential deals with Advanced Micro Devices and Intel, chipmaker representatives have said.

One advantage Apple has this time: the open-source FreeBSD operating system, of which Mac OS X is a variant, already runs on x86 chips such as Intel's Pentium. And Jobs has said Mac OS X could easily run on x86 chips.

The move also raises questions about Apple's future computer strategy. One basic choice it has in the Intel-based PC realm is whether to permit its Mac OS X operating system to run on any company's computer or only its own.

IBM loses cachet with the end of the Apple partnership but it can take consolation in that it's designing and manufacturing the Power family processors for future gaming consoles from Microsoft, Nintendo and Sony, said Clay Ryder, a Sageza Group analyst.

"I would think in the sheer volume, all the stuff they're doing with the game consoles would be bigger. But anytime you lose a high-profile customer, that hurts in ways that are not quantifiable but that still hurt," Ryder said.

Indeed, IBM has a "Power Everywhere" marketing campaign to tout the wide use of its Power processors. The chips show up in everything from networking equipment to IBM servers to the most powerful supercomputer, Blue Gene/L.

Intel dominates the PC processor business, with an 81.7 per cent market share in the first quarter of 2005, compared with 16.9 per cent for Advanced Micro Devices, according to Dean McCarron of Mercury Research. Those numbers do not include PowerPC processors. However, Apple has roughly 1.8 per cent of the worldwide PC market, he added.

Apple shipped 1.07 million PCs in the first quarter, and its move to Intel would likely bump up the chipmaker's shipments by a corresponding amount, McCarron added.

CNET News.com's Michael Kanellos and Richard Shim contributed to this report.

Stephen Shankland writes for CNET News.com