IBM's Chip Shift Will Blunt Apple Effect

IBM's Chip Shift Will Blunt Apple EffectJune 10, 2005 10:52AM "Despite the potential customer loss, IBM's ramp of video game business over the next year will likely far exceed the loss of Apple business," Deutsche Bank analyst Chris Whitmore said. --------------------------------------------------------------------------------Don't be surprised if you achieve your business goals sooner. Introducing PlanView Enterprise. You can now align IT with your business strategies, elevate your company's IT performance and increase enterprise-wide visibility. For details, visit www.planview.com/enterprise --------------------------------------------------------------------------------Apple Computer Inc.'s decision to use PC chips made by Intel Corp. may not have as great an impact on current chip supplier IBM as some investors might suppose at first glance. That's because IBM has been shifting its emphasis in recent years away from PC chips to those used to power other types of devices, especially video game players, several analysts wrote Monday. IBM is supplying the microprocessors that will act as the brains for the next generation of best-selling video game consoles, including Microsoft's Xbox 360 , Sony's PlayStation 3 and Nintendo's Revolution. Even though the average selling prices of those chips are estimated to be lower than those sold to Apple, the volume of shipments should more than exceed the loss of business to Apple, according to reports from both Goldman Sachs and Deutsche Bank Securities. "Despite the potential customer loss, IBM's ramp of video game business over the next year will likely far exceed the loss of Apple business," Deutsche Bank analyst Chris Whitmore said. Deutsche Bank estimates IBM will sell its gaming chips for about US$100 on average. It sells its chip to Apple for roughly $150 on average. The news that Apple is dumping IBM as its PC-chip supplier after more than a decade comes just six months after IBM sold its own PC unit, which struggled to make a profit, to Chinese rival Lenovo. To be sure, sales at IBM's semiconductor unit won't be helped by comments from Apple CEO Steve Jobs that his company judged the performance of Intel's chips as superior to IBM's. IBM's chip unit was expected to generate $300 million in sales, or 13 percent of its revenue, from sales of Apple chips, up from $248 million, or 12 percent of chip sales, in 2004. Still, its chip sales to Apple contribute less than 1 percent of IBM's total revenue of $99 billion, suggesting the financial impact of Apple's decision will be minimal. "The headline risk is greater than the actual risk," wrote Goldman Sachs analyst Laura Conigliaro, who left her profit estimates for IBM this year unchanged. © 2005 AFX News Ltd. All rights reserved.© 2005 NewsFactor Network.