Apple's Board: Still Room for Schmidt?

The Google CEO's spot on Apple's board could go from awkward to untenable as the search giant's mobile push brushes up against the iPhone

Apple Chief Executive Steve Jobs, Google CEO Eric Schmidt Getty Images

by Arik Hesseldahl

Until now, having Google Chief Executive Eric Schmidt sit on Apple's (AAPL) board of directors has made a lot of sense. Google (GOOG), the world's largest Web-search engine, is one of the most influential companies in technology. Google has been incredibly supportive of Apple's flagship computer, the Mac, and has developed a lot of software for Apple's music-playing iPhone, notably a tool that lets users watch video from Google's YouTube site. Why wouldn't Apple, an innovative creator of hardware and software for Web-enabled computers, music players, and cell phones, want Schmidt's informed viewpoint on the Internet and its evolution?

Google is also increasingly becoming a would-be Apple competitor, making Schmidt's membership on Apple's board awkward, if not ultimately untenable. Concerns over a potential conflict of interest have surfaced in the tech blogosphere in the past, but the potential for rivalry takes on added urgency as Apple prepares to launch the next version of its iPhone while Google partners ready cell phones that run Google's operating system.

Android Arriving

Google will also soon become a big backer of a company that could go mano a mano with Apple's U.S. iPhone partner in providing mobile Web access. Google is set to provide $500 million in funding (BusinessWeek.com, 5/7/08) for a joint venture between Sprint Nextel (S) and Clearwire (CLWR) that will provide wireless Internet access at speeds faster than those available over the network run by AT&T (T), the only authorized U.S. iPhone carrier.

The overlap has been years in the making. Last June, a little less than a year after Schmidt joined Apple's board (BusinessWeek.com, 8/31/06), Apple introduced its iPhone. The second iteration of the iPhone will be marketed even more widely and likely appeal to a larger global customer base. By the end of March, Apple had sold 5.4 million iPhones. Piper Jaffray (PJC) analyst Gene Munster predicts that by the end of 2009, Apple will have sold 45 million, almost nine times as many.

Google made clear its intentions to be a player in the wireless industry long before it backed the Sprint-Clearwire venture. In 2005, Google acquired Android (BusinessWeek.com, 8/17/05), a software maker that is now the heart of its efforts to build an operating system for wireless phones, also known as Android (BusinessWeek.com, 1/22/08).

Many Recusals

Assuming Munster's aggressive predictions for the success of the iPhone pan out, then the iPhone may account for as much as $18 billion in booked revenue in the 2009 calendar year, or roughly one-third of $57 billion in booked revenue he expects for the year.

Google won't be selling phones, per se. Instead, its Android project will spawn software for phones that will be made by such manufacturers as Motorola (MOT), HTC, and Samsung. It's less easy to predict exactly how successful these phones will be, but they're hitting the market just as demand for multifunction wireless devices, so-called smartphones, takes off. Market research firm iSuppli pegged the worldwide market for smartphones, a category that includes iPhones, Research In Motion (RIMM) BlackBerrys, Microsoft's (MSFT) Windows Mobile devices, and Palm (PALM) Treos—at 136 million units at the end of 2007. It's expected to surge to 229 million by the end of 2009, making it the fastest-growing segment of the wireless hardware market.