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Apple Completes Intel Switch

Jobs debuts the new machines at the Worldwide Developers Conference, but the lack of a surprise product disappoints some Mac watchers

Apple Computer completed the transition it had begun a little more than year ago to selling computers based on microprocessor chips from Intel, announcing a new desktop machine dubbed the Mac Pro and a new Intel-based version of its XServe line of rack-mounted server computers.

The announcement came Aug. 7 in a keynote presentation from Apple (AAPL) CEO Steve Jobs at the company's Worldwide Developers Conference in San Francisco, a gathering where software developers learn the ins and outs of programming for Apple's Mac OS operating system. The hardware announcements were accompanied by a demonstration of Apple's next version of its operating system software, code-named Leopard, which it said is expected to hit the market in the spring of 2007. Apple execs demonstrated several new features in the software, but Jobs said he purposely left out some of the spicier features the new release will have, for fear of giving rival Microsoft (MSFT) a heads-up.

As Apple events go, WWDC 2006 was rather tame. There was no new iPod or iMac with some eye-catching new design. No performances from friends-of-Apple such as Wynton Marsalis or John Mayer. Indeed, there were even a few empty seats at the Moscone West convention hall in San Francisco as Jobs took the stage for a keynote that was free of the famous "one more thing" slide—a surprise product.

Apple investors, perhaps disappointed that Jobs revealed no highly anticipated products such as a much-rumored iPod phone, drove Apple stock down by $1.09, or more than 1.5%, on the news. Additionally, the event couldn't help but be overshadowed by Apple's disclosures last week concerning an internal investigation over irregularities concerning stock options granted to employees (see BusinessWeek.com, 8/4/06, "A Worm in the Apple").

"PRICE SKIRMISH."

  Like all the other new Apple hardware running chips from Intel (INTC), the Mac Pro differs little cosmetically from its immediate predecessor, the PowerMac G5, which had been the company's flagship machine aimed at professionals, but which used PowerPC chips from IBM (IBM). That product saw its last update in October, 2005. The new machine sports Xeon chips from Intel that run up to 3.0 GHz, vs. a top clock speed of 2.5 GHz for the older machine. Apple is describing the machine as "a quad Xeon" because it contains two Xeon chips, each of which has two cores, the central computing portion of a microprocessor chip.

The MacPro is shipping immediately with a starting price of $2,499, which is typically where Apple products in this class are priced. However, now that Macs can run Windows XP with a little extra software, Apple has staked out some aggressive pricing territory in comparison to Dell (DELL) and Hewlett-Packard (HPQ), says analyst Tim Bajarin of Creative Strategies, a Silicon Valley consultancy. "Apple has really thrown down the gauntlet on price against Dell and HP. They're selling a comparable system for about a thousand dollars more. It's not a price war, but I would call it a price skirmish."

No doubt these announcements will fuel further momentum for the company. Apple sold more Macs, 1.33 million, last quarter than at any time in its history but almost entirely thanks to iMacs and its new MacBook laptops. The new products introduced Aug. 7 fill in the last major portion of Apple's product line that had yet to make the move to Intel, and Apple seems intent on gaining share with these corporate and high-end users, as well. Senior Vice-President of Worldwide Marketing Phil Schiller says the notion that Apple is expensive is "a myth that we're going to beat down and bust. Not only do we make better products, but they're also more affordable" (see BusinessWeek.com, 6/15/06, "Apple's Growing Bite of the Market").

E-MAIL ENHANCEMENTS.

  Judging from interviews with some in the audience, there could be pent-up demand for its high-end system. "I doubt many people have purchased any of Apple's Pro machines in the past six months, but I bet Apple will see some big orders now," says Allan Marcus, an IT staffer at Los Alamos National Laboratory. He says many of the lab's top researchers have begun using Macs in recent years, since the debut of Mac OS X and its Unix kernel in 1999. "I wouldn't be surprised," he says, "if there will be e-mails waiting for me, asking when we'll have the new machines."

As for the software enhancements, one eye-catching feature, dubbed "Time Machine," backs up the entire contents of the hard drive automatically to an extra hard drive, or finds files or photos users have mistakenly deleted. A company survey showed that only 26% of its customers now back up, and only 4% use any automation software to do it regularly. "We're going to change all that," said Scott Forstall, Apple's vice-president of platform experience.

Jobs also showed off enhancements to its e-mail program, called Mail, that were classic Apple—improvements that were not great technical leaps, but solve problems that every PC user will immediately identify with. For example, Leopard users will be able to format e-mails to look like stationery, so notes with pictures from your vacation or invitations to your kid's birthday party won't look like just another memo to your boss. Also, for those that use e-mail to send themselves notes and to-do lists, these will now be called out separately in the mail program.

MICROSOFT'S MAC MOVES.

  Missing, however, was any big news about Windows compatibility. While Jobs announced that there have been 500,000 downloads of Apple's Boot Camp software, which lets Mac users run Windows on their Intel-based machines, he did not say whether Apple would take the next step to support Windows itself or an emulation technology so that users wouldn't have to boot up each time they wanted to switch (see BusinessWeek.com, 4/6/06, "Mac and Windows, Tech's New Odd Couple").

In comments after the keynote, Schiller told BusinessWeek that Apple's plan not to provide such support is not going to change—that Windows support is not one of the "top secret" features the company did not disclose.

Goldman Sachs analyst David Bailey said in a research note following the announcement that Leopard, combined with the new Apple machines, would "accelerate the upgrade cycle with Apple's loyal user base," which could add 200,000 units to its sales, and between $250 million and $300 million in sales in calendar year 2007 above what he has already forecast.

Separately, the Microsoft unit that builds Mac software said it would cease development on its VirtualPC software package. The company had acquired that product, which gave Mac users an opportunity run Windows software in emulation, in 2003 from Connectix. However, it renewed its commitment to move its version of Microsoft Office for the Mac to a format that will run on Macs with Intel processors. It also announced new versions of its MSN Messenger software for the Mac and its Remote Desktop Connection software that allows Mac users to connect to Windows machines over a network.

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