IBM and Apple chip competitors? Not quite

Despite the fact that Apple has yet to produce an iPhone chip based on its own design, and that IBM doesn't design smartphone chips, the judge overseeing the Mark Papermaster noncompete case views the two companies as chip competitors.

Judge Kenneth Karas of the U.S. District Court for the Southern District of New York filed his opinion Monday (click here for PDF) on why former IBM executive Papermaster should not be allowed to join Apple as head of the iPhone and iPod hardware engineering team. Karas' decision to grant a preliminary injunction preventing Papermaster from working at Apple was revealed a few weeks ago, but the reasoning behind the opinion was delayed until IBM and Apple had a chance to review the opinion to make sure it did not disclose any confidential information.

There's no dispute that Papermaster signed a noncompete agreement in 2006 that would forbid him from working at any company deemed a competitor of IBM's for a year following his departure from Big Blue. Papermaster's lawyers are attempting to argue that since the only overlapping product between Apple and IBM--servers--is one that wouldn't be part of his official duties at Apple, and since he won't be running Apple's P.A. Semi chip design team, the noncompete shouldn't apply.

Judge Karas appeared to agree that since Apple's server business is such a small portion of its business and Papermaster will have nothing to do with that group, that experience isn't really at issue. But in his opinion, IBM and Apple are competitors in the chip market because both companies produce or will soon produce chips that wind up in mobile phones--regardless of whether those chips are similar or even whether those chips were designed by company employees.

Of course, the court recognizes that IBM does not sell MP3 players or cell phones that compete with the iPod or iPhone. But, IBM does sell the microprocessor technology that provides the electronic brains for those products and competes for that business. To profit from the manufacture and sale of such products, IBM relies heavily on its "Power" architecture, and has employed Mr. Papermaster as its top expert in the development and application of that technology.

Karas leans on a declaration filed by Rodney Adkins, IBM's senior chip executive, in forming his opinion that IBM's chip group competes for design wins in products like the iPhone and iPod Touch. Adkins wrote, "Steven Jobs, Apple's CEO, told the press recently that 'P.A. Semi is going to do system-on-chips for iPhones and iPods.' IBM designs and manufactures microprocessors suitable for each of those applications." System-on-chip, or SoC, is a term used to describe a single chip that comes with all the technology needed to run a system, such as the applications processor, communications hardware, and other vital parts.

That led Karas to believe that IBM has a healthy business selling similar SoCs for mobile phones or iPods. "Apple announced its intention to have P.A. Semi develop the very type of product that IBM sells to the market generally, and would like to sell to companies like Apple," Karas wrote in his opinion, referring to Adkins' statements.

But IBM doesn't appear to have any customers for those mystery microprocessors referred to by Adkins as potential products for the smartphone market. An IBM representative was unable to provide the names of IBM-designed microprocessors or SoCs for smartphones or handheld computers.

And the Power architecture--where Papermaster's expertise lies--is not a serious player in smartphones or handheld mobile computers like the iPod Touch; the ARM architecture dominates this market. No major smartphone maker uses a Power-architecture applications processor in its phone, and as far as I can tell, none is really considering it.

Power.org, the industry organization dedicated to advancing the Power architecture, doesn't even consider mobile phones as potential applications for that architecture. Power-architecture chips these days are found in gaming consoles, telecommunications equipment, and other embedded applications, according to an IBM developer page linked from the Power.org site.

The only way IBM currently participates in the mobile phone market is by making chips for other companies that design the inner workings of the chip themselves. IBM runs a chip-manufacturing business (known as a foundry) for companies that design chips but don't have the billions of dollars required to build and maintain a modern semiconductor factory.

"We manufacture and sell customized chips to specific customers who make products that compete with the Apple iPhone. We do not 'advertise' these specific customized chips since we are dealing with a specific customer. Chips are made to the customer's specification," wrote Fred McNeese, an IBM representative, in an e-mail message.

Those chips do not appear to be the SoCs that P.A. Semi is developing; rather, they appear to be lower-level components that are needed to run modern mobile phones, such as controllers and digital television chips.

It's possible that IBM is worried about Papermaster's knowledge of IBM products or technologies that have not yet come to light. Likewise, power-management techniques that are used in the design of Power-based server processors or the components IBM manufactures could have some applications for P.A. Semi's group.

But the issue here is competition. IBM's position seems to be that even though it doesn't appear to have a single customer for the unspecified processors suitable for mobile computers, IBM is a potential SoC supplier for Apple's iPhone who could be shut out because Papermaster could improve Apple's P.A. Semi team by sharing trade secrets regarding an architecture that Apple does not appear to be planning to use.

It's a bit surprising that Apple waived its right to an evidentiary hearing that would have allowed it to challenge certain parts of the declarations filed by IBM, said John Siegal, a partner with Baker Hostetler in New York. However, that would have probably involved having to put several Apple executives on the witness stand to explain Papermaster's role and the plans of the P.A. Semi organization, and Apple is not known for its willingness to speak publicly about its future plans.

The two parties were to have discussed a schedule for "expedited discovery" and a trial at a status conference last week. It's not known what emerged from that conference; Papermaster's lawyers have declined multiple requests for comment, and IBM representatives have not commented on the conference.