Ibm Apple Could Be Fearsome

In a Sept. 23 speech to fellow industry executives gathered at a Southern California resort, Apple Chairman John Sculley declined to give specifics about his company's new alliance with former foe IBM. But in his talk, Sculley repeatedly referred to James A. Cannavino, the general manager of IBM's personal-computer division, as "Jimmy." The familiarity raised eyebrows in the crowd, but it gave them the clue they wanted: Apple Computer Inc. and IBM are getting chummier all the time.

The companies plan to detail just how friendly they've become on Oct. 2 at an elaborate San Francisco event to be beamed around the world via satellite. Their final agreement is a sweeping array of joint efforts in hardware, software, and networking that could profoundly alter the $93 billion personal-computer industry's balance of power. Indeed, the two are already calling their collaboration the start of a computer industry "renaissance."

The rhetoric may not be far off the mark. The industry's No. 1 and No. 2 are awaiting government approval of their alliance, and there may be some final tinkering. But if all goes according to the plan, as outlined in documents obtained by BUSINESS WEEK and confirmed in interviews, the agreement will go far deeper than anyone expected. IBM, for instance, will give Apple the keys to its corporate kingdom by sharing the technology Apple needs to link the Mac to IBM mainframes. And although many of the duo's resulting products are years away, some of their efforts may bear fruit next year--12 months sooner than had been predicted. Officially, top executives won't talk details, but they are high on events so far. "We're cooking," says IBM's Cannavino.

As a result, Apple and IBM could both soon see the rising sales that are the goal of this deal. For IBM, the challenge is to convince customers that Big Blue still holds a technological edge. From 1985 to last year, cut-rate clones drove IBM's share of the PC market from 27% to 16.5%, says researcher International Data Corp. And while Apple has increased its share by seven points, to 19%, with low-cost computers, the effort has pummeled profits.

HEAVY SECURITY. Indeed, the promise of revitalized business was enough to light a fire under the negotiations--despite the involvement of hundreds of lawyers and executives on both sides. In the time since they announced a preliminary deal on July 3, the participants, also including semiconductor maker Motorola Inc., negotiated a multitude of cross-licenses, an agreement to launch two jointly owned companies, and provisions for sharing facilities and employees.

They even managed to overcome what threatened to be the biggest stumbling block--the cultural differences between the companies. A Motorola demand, for instance, that employees be subject to bag-searches at the end of the day appalled the IBMers. Their solution: a new facility will be dedicated to the project, where security is state-of-the-art. At Apple, where the collaboration is referred to as "the IBM thing" talks centered on how to keep giant Big Blue from overwhelming its partner with engineering and marketing people. The result: Apple employees far outnumber IBMers in a critical operating-system project.

In the end, the companies surmounted their differences and produced a technology alliance with four major components (table). The most elaborate involves the plans to launch startups. One, based in Silicon Valley, will develop new multimedia software standards. That technology, a current computer-industry hot button, gives PCs video, sound, and animation capabilities. Although the agreement won't result in products for as long as five years, the two are promising to license their work to other software makers. That's a challenge to Microsoft Corp., IBM's estranged ally, and a group of PC makers, including Tandy Corp., that have a multimedia collaboration under way.

The combine's stiffest challenge to the status quo comes from the second new company. Charged with producing an advanced operating system, the effort is another jab at Microsoft. Due in mid-decade, the software is meant to replace Microsoft's popular Windows program by making it easier for computers based on different designs to share data.

That ambitious project will be based onan Apple development project called Pink. Apple has completed nearly 1 million lines of code for Pink, giving it the upper hand in negotiating how the joint venture will operate. The company is to be based in Apple's Silicon Valley backyard and will be staffed with 200 people--150 of them Apple workers. Although the startup doesn't yet have a chief executive--a board of directors will name one--Edward W. Birss, an Apple senior vice-president, is considered a shoo-in as chief operating officer.

For IBM, Pink could be a mixed blessing. The fanfare surrounding it may not hurt Microsoft much, since IBM and Apple's delivery date is so far in the future. But it could undermine IBM's OS/2 operating system. IBM's effort is already plagued with problems. And its deal with Apple could raise questions about IBM's commitment to OS/2.

BREAKING OUT. Other aspects of the alliance are far closer to completion than Pink. By as early as next year, the two could be selling products that make it easier to link Apple Macs with IBM mainframes, minicomputers, and PCs. That promise is at the heart of Apple's decision to get involved with IBM in the first place. The company needs to end its technological isolation and move its Mac into offices filled with Big Blue boxes.

Longer term, Apple's efforts to share in the IBM-compatible world are dramatic. The company has agreed to base future versions of its Macintosh computers on a new chip being developed by IBM and Motorola. The chip is based on reduced instruction-set technology that IBM uses in its RS/6000 workstations. Called the PowerPC, it will be developed by 300 IBM and Motorola employees at a facility dubbed the Customer Design Center in Austin, Tex. To make their PowerPC-based computers work together, IBM and Apple will write a new Unix operating system--the software usually used on RISC workstations.

Although the PowerPC won't be ready until 1993 at the earliest, the effort is meant as a direct challenge to Compaq Computer Corp.'s efforts to coalesce the industry behind another RISC chip, made by MIPS Computer Systems Inc. It's also aimed at No. 1 workstation maker Sun Microsystems Inc., which has successfully won IBM customers for its competing workstations.

Like much of the industry, Sun says it's not much worried about the IBM/Apple deal. Indeed, Sun CEO Scott McNealy has been calling the pair's upcoming operating system "purple applesauce." Says Lotus Development Corp. Chief Executive Jim P. Manzi: "Everything is a function of delivery."

Then again, the idea of an IBM/Apple alliance was the stuff of fantasy as recently as last spring. Now, the industry is calling it the DOC, for "deal of the century." If the fast start for the alliance is any indication, the skeptics may soon be running for cover--or back to their drawing boards.



Starting early next year, Apple and IBM computers in the same office will be able to share software and other information and equipment, thanks to new networking products and cross-licensing agreements. Products will be tested at an IBM lab in Research Triangle Park, N.C.


About 300 IBM and Motorola employees will combine to create a chip called the PowerPC. The chip will use the speedy RISC, or reduced instruction-set computing, technology. It is scheduled to be available to all computer makers in 1993 or 1994


IBM and Apple will form an independent software company based in Santa Clara, Calif. Staffed by 200, it plans to produce by mid-decade an object-oriented operating system available to all computer companies

By 1994, Apple and IBM plan to have developed a new Unix operating system that will run on either company's workstations


IBM and Apple will form a jointly owned company to develop multimedia software, which gives the PC video, sound, and animation capabilities. Products will be available to software developers in the mid-1990s


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