For years the thought of an Intel (INTC) chip going into an Apple computer (AAPL) was enough to make those who love their Macs turn various shades of green.
Green from hostility toward anything that might give the Microsoft (MSFT)-Intel alliance dominion over their corner of the computing world. Then there was the green from worry that an Intel chip in a Mac would bring the popular machines closer to the commodity status that plagues other PC makers. There was also a twinge of envy's green in the knowledge that high-end Intel chips, by many measures, consistently surpassed the performance of the PowerPC chips from IBM (IBM) and Freescale Semiconductor (FSL).
But now that an Intel-chip Mac is a fact (see BW Online, 1/9/06, "Just What Apple Needs: Intel"), is Apple seeing the green that accompanies cost savings and better profits? The verdict awaits, but it's possible.
BREAKING IT DOWN. Silicon Valley research firm iSuppli conducted a teardown analysis of the $1,299 17-inch iMac containing the Intel chip. Researchers use such analysis to estimate how much a computer maker pays for components and what profit may be wrung from sales (see BW Online, 10/25/05, "Inside IBM's Xbox Chip"). It costs Apple $898 to assemble the iMac before loading it with software and packing it in a box, iSuppli says.
The most expensive component in the iMac is the Intel Core Duo processor. Apple's paying about $265 apiece for the chip, iSuppli estimates. "We made a conservative guess that Apple is getting a 10% discount on that chip," says Andrew Rassweiler, manager of iSuppli's teardown team. "But Apple is Apple. It's such a tough negotiator, that discount could be higher."
Two other Intel-made chips, which sit between the Intel Core Duo and other systems in the computer, cost $14 and $31, respectively, iSuppli says. That makes Intel's total silicon content in the new machine worth about $310, or more than one-third of the cost of materials, using the researcher's estimates.
APPLES TO INTEL. But how does that compare to the last PowerPC-based iMac G5, released just last October? Comparisons, it turns out, are tricky. First, Apple rarely sheds any light on the costs of components it buys from its suppliers -- and those suppliers rarely talk about the prices they charge their customers.
Some analysts suggest that Apple might have been paying less than $100 for the IBM single-core PowerPC 970 chip that went into the final iMac G5, which would imply an increase in materials cost of more than $200 per unit.
"I don't know how much Apple pays for that IBM chip, but you can bet it's absurdly low," Nathan Brookwood, head of market researcher Insight64. "Apple has this crazy idea that it shouldn't have to pay as much as everyone else. And whatever it's paying for the IBM chip, I'm sure it's paying more for the Intel chip."
But during the time it used PowerPC chips, Apple also designed its own custom chip that sat between the PowerPC and other parts of the computer, such as the main memory and graphics chips. That chip has been supplanted by the two less expensive Intel chips, meaning at least some of the development costs associated with that custom chip have been saved. "It's really not an Apples to Apples comparison, if you will," says Instat/MDR chip analyst Kevin Krewell.
STAYING COOL. But for Apple, the switch to Intel chips is less about saving money in the short term, and more about hitching its wagon to Intel's longer-term product road maps, particularly in the area of notebooks. IBM's chips are power-hungry and generate a lot of heat, and therefore not suitable to notebook computers, which make up an ever-increasing portion of Apple's business. IBM hadn't managed to build a PowerPC 970 chip that was notebook-ready.
Meanwhile, the iMac line -- a desktop computer -- includes many components that would otherwise be used in a notebook. Intel's chips make it easier to control heat generation and power consumption, and thus leads to quieter systems that don't require a fan buzzing all the time, says Matthew Wilkins, iSuppli's senior analyst for computer platforms research.
"Users want quiet machines, and they want powerful machines," he says. "Intel is very focused on designing processors that deliver the maximum performance and yet are not generating lots of heat or using huge amounts of power. For now, the Intel Core Duo fits that bill perfectly." Or bills, as the case may be. And for Apple, you can bet they're the green kind.
Hesseldahl is a writer for BusinessWeek Online in New York
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