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It's back to the future for Motorola and Apple

Motorola is once again the sole supplier of advanced chips to Apple Computer, a development that could place Apple in a precarious position should there be a hiccup in Motorola's assembly lines.

Motorola is once again the sole supplier of advanced chips to Apple Computer, a development that could place Apple in a precarious position should there be a hiccup in Motorola's assembly lines.

The impact of having a single supplier of the advanced new G4 PowerPC chip, made with cutting-edge manufacturing techniques, isn't fully measurable at this point. However, as with any new product introduction, there is a chance that there could be problems producing enough of the new chips to make the G4 computers widely available.

For Apple, its resurgence may be a double-edged sword, because meeting increased demand means a steady supply of chips must be available. Since the 1994 introduction of the first PowerPC chip, Motorola and IBM have sold chips for each new family of PowerPC processors.

So far, Apple is downplaying the potential for any problems, and analysts seem confident that Motorola has the experience to smoothly pull off a new chip introduction.

"Right now, we've got our hands full getting [G4 systems] to market," said Phil Schiller, vice president of worldwide marketing for Apple. "I'm not going to say we don't like having two suppliers, but for the moment, that's not an issue."

Anecdotal evidence indicates that Apple may have jumped the gun on announcing the availability of G4-based machines.

At the Seybold trade show in San Francisco, Steve Jobs, Apple's interim CEO, seemed to indicate that some G4 systems were available immediately. However, a representative at Apple's direct sales unit said that systems won't be available for another 10 days, and that no units have been shipped to retailers.

The 450-MHz G4 systems are due by the end of the month, and 500-MHz chips aren't due until October. Apple is also working on a dual-processor server but did not introduce the product at Seybold show. One industry source speculated that there are simply too few 500-MHz chips around to be putting them in servers, which don't sell as well as desktop systems.

Apple's exposure to a potential chip shortage is reduced somewhat by the fact that the G4 isn't going into a particularly high-volume line of products, said Bruce Bonner, chip analyst with market research firm Dataquest. The market for G4 chips in desktop computers will reach about a million units per year, which Motorola is capable of supplying, he said.

"Motorola has good process technology. There's probably no issue, either from a technology standpoint or a production standpoint," Bonner said.

Impact to be felt later?

Other analysts acknowledge the potential for trouble, but remain confident Motorola can meet demand from Apple.

"There's some risk, but my sources tell me Motorola should be able to supply at least the near term demand and if they really outstrip demand, it wouldn't be inconceivable that IBM could join the fray if they wanted to," said Lou Mazzuchelli, a financial analyst with Gerard Klauer Mattison.

Indeed, the question may not be of much relevance until Apple also starts to use the G4 chip in PowerBook notebooks sometime later next year. Aside from needing a larger supply, Apple will also need chips designed for use in notebooks, where heat dissipation and energy consumption are key issues.

The issue is of particular relevance to PowerBook supplies because the company has historically had difficulty keeping up with notebook demand.

One way to accomplish this is to make the same chip in even smaller sizes, something that analysts say IBM excels at. In fact, IBM is currently supplying chips for the new iBook, which is built with copper instead of aluminum, helping make them run cooler and use less power.

The G4 from Motorola is also a copper chip. However, some industry observers (who wished to remain anonymous because they work with both companies) said IBM is likely to be first to have the manufacturing techniques ready for making even smaller and faster copper chips.

One potential scenario could be a situation in which IBM uses Motorola's design and becomes a contract manufacturer for Apple to produce versions of the G4 for notebooks. This is if Apple eventually did decide it needed an additional supplier.

However, no joint development on manufacturing processes is underway, and none is currently planned, said Will Swearingen, director of PowerPC marketing with Motorola.

Divergence in plans for PowerPC
Apple's reliance on Motorola is not surprising. Analysts have been anticipating Apple would have to increasingly lean on Motorola for its chip technology.

The situation stems from a divergence in the plans for the PowerPC between Motorola and IBM. Motorola is pursuing opportunities to use technology it calls AltiVec in the market for embedded processors, which control everything from cars to telecomunications equipment. Although AltiVec (dubbed Velocity Engine by Apple) was developed by all three parties, IBM has decided not to use the technology for now. IBM has said since last year that is still considering incorporating the technology in its chips, according to an IBM spokesperson.

In the meantime, IBM has decided to focus its development efforts on boosting the clock speed of chips used in its own products, such as servers and workstations. The company also has plans to sell PowerPC-based chips for use in embedded systems.

For Apple, the past seems to be prologue with the introduction of the G4. Apple used Motorola's products--such as the 68000 series of chip--exclusively from the 1980's until the PowerPC's introduction.

As Motorola's Swearingen put it: "Apple did just fine for ten years" using Motorola as a sole chip supplier.

Having a sole supplier is nothing new for PC companies such as Packard Bell and Dell, which have long relied almost exclusively on chips from Intel.

While both Intel and Motorola use advanced technology for making chips, Intel has 13 multi-billion dollar fabrication facilities devoted to a few basic products. This allows the company to fine tune the complicated task of making a brand new chip, and if there are problems in one facility, there are others that can take up the slack.

Motorola, meanwhile, is increasingly looking to partner with companies that can quickly implement new chipmaking techniques. The company has already started to outsource production of some of its chips, said Allen Leibovitch, manager for International Data Corporation's semiconductor research program. The advantage is that its foundry partner can worry about making the chips smaller and more efficient.