WORTH READING Apple's Spat With Google Is Getting Personal

[David Farber <dave () farber net>]

Begin forwarded message:

From: Newmedia () aol com
Date: March 17, 2010 6:08:31 AM EDT
To: dave () farber net
Subject: Re: [IP] Re: Apple's Spat With Google Is Getting Personal

Folks:
 
The issue for Apple is a simple one -- profits.  By virtue of its "closed" business practices, Apple's gross margins 
are many multiples higher than their competitors.  These profits, in turn, support stock price multiples that are 
higher than its competitors.  But is this a house of cards which must inevitably fall?
 
What is usually missed in the "closed vs. open" debate is the impact of crucial competitive forces.  In this case, the 
most important actor-to-be is Intel.  When Intel is ready to compete against the ARM architecture with its Atom-based 
x86 technology -- likely in 2012 and substantially assisted by its partnership with Nokia -- the competitive structure 
of the smart-phone market will probably be upended.
 
Apple has always been an anomaly in business terms.  For years IBM and Motorola subsidized Apple's Macintosh by 
providing below-cost silicon, in order to keep their Power PC production lines full.  IBM no longer needed Apple in 
2003 when they signed up the Microsoft and Sony game consoles and Motorola also abandoned them when it spun out its 
semiconductor division.  Intel stepped in to rescue Apple's margins with special chip prices and massive engineering 
help.  Apple said thanks -- but no thanks.
 
The real conflict here is between Apple and Intel -- not Apple and Google, which is in many ways acting as Intel's 
surrogate.  Apple responded to Intel's "help" by buying PA Semiconductor, which has produced the processor in the iPad. 
 Apple's "closed" margin structure is in Intel's cross-hairs and that is why Apple filed its lawsuit against HTC, a 
company that is working with Intel on next-gen smart-phones.
 
Best,
 
Mark Stahlman
New York City




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