|by Wes George
Why FireWire May Make Apple A Smart Buy
February 1st, 1999
I was all prepared to write about what a coup détat the Hal 2001 commercial was on the Super Bowl. I just watched it and it went over like a ton of bricks. The eerie, serious tone of the commercial was totally out of sync with the multifarious flavor of that ridiculously over-produced event we all love and cherish. I really dont think more than one in a hundred watching the Super Bowl even noticed the commercial. Too bad because its very cool.
The real Apple news of late was the kind of subtle, far-reaching stuff that is hard to analyze and requires hours of research to fully understand the financial implications. I actually undertook none of this. The weekend was wasted on my annual Super Bowl binge, so you'll have to do your own homework. However, I do have some leads for you.
The FireWire (IEEE1394)
From Apples homepage
"FireWire promises to revolutionize the transport of digital data for computers and for professional and consumer electronics products. By providing an inexpensive, high-speed method of interconnecting digital devices, FireWire is truly the versatile I/O connection. Its scalable architecture and flexible peer-to-peer topology make FireWire ideal for connecting audio, video, and computer devices. Its isochronous support allows low cost implementations of multimedia interfaces. Every month more digital electronics products are entering the market. These products will continue to evolve and FireWire will be evolving with them."
We all know that Apple is going to license FireWire for an extortionate dollar per interface port fee. But did you know what a big deal the FireWire could be to Apple's bottomline over the next couple of years?
One estimate at asiabiztech.com said, "
Apple is likely to gain an enormous amount of royalties. A test calculation made by home electric maker shows that only one house uses 20 or more IEEE1394 ports. If the interface is more widely used in the future, Apple can earn 100 billion yen (US$880 million), or more, annually as royalty only from houses in Japan..."
Bingo. And thats just in Japan! This is one of the unexpected pleasures of investing in a bleeding edge R&D house as opposed to a PC assembly line. A couple of questions Ill have to research are how much did Apple spend developing the FireWire and how long will it take for the royalties to offset this expense.
Also from asiabiztech.com, the downside: " Some companies are considering employing a different interface like Intel. Many observers share the view of a public promotion officer at a major home electric maker that the raised royalty is 10 percent or more higher than regular royalties."
Some fear that Apples high price per port fee for the IEEE 1394 standard may undermine the FireWires chance to be the universal interface it seems destined to become. PC manufacturers could postpone implementation till Intel or IBM develops an alternative to the FireWire. Apple holds a slew of related patents that would slow but not stop any reverse engineering effort.
I think that's unlikely that manufacturers will pass on FireWire due to price. They cant hold their breath waiting for some as yet undefined open standard. Competition, the law of the jungle, is going to force them to implement now. Besides, the cost can just be passed along to unsuspecting consumers. That's the way they do it in the oil biz!
The Sony Corp has adopted the interface in its VAIO line of notebook PCs and digital camcorders. As goes Sony so goes a big hunk of the electronics world. Now that's long-term, bullish, technologically meaty news, not silly iMac fluff. Yes, I know, iMac is paying the bills now but as investors were always trying to peer into the future.
Still, one has to wonder whether the Cupertino corporate culture can successfully launch and maintain growth momentum on a first to market superior product. We shall never forget the painful lessons learned over the operating system war Apple lost to you know who. FireWire, like the Mac OS of the 1980s, has a shot at becoming a world wide standard ubiquitously holding a near 100 percent market share. With such omnipresence, the FireWire market share would be impenetrable to alternative standards for years
By over-charging on royalty fees in the early days of the FireWire implementation, Apple may actually create market parameters that make it feasible for deep-pockets to undertake the development of alternative standards. Similarly, the OPEC cartels venally high oil prices broke the cartel by encouraging the exploration for new oil fields and massive conservation of energy.
AIM (Apple, IBM, Motorola)
The other long-term bullish info I noticed this week while nosing around the web was that the PowerPC processor is really a wondrous thing. It's a gorgeous architecture with miles and miles of legroom for development well into the 21st century.
In fact, expect a 1Ghz PPC next year at this time.
The breaking news is that Motorola is set to introduce the G4 at the 1999 IEEE International Solid-state Circuits Conference in San Francisco. IBM will be there with a new superfast 580Mhz PowerPC 750. Both of these chips put the Pentiums to shame for a lot of "mumble-jumbo" that I'll leave to the more technically inclined here at the Mac Observer to explain.
Compare this to the state of the aging Pentium architecture. Its stretched to the breaking point. The 400Mhz version needs a heat sink 5 times the size of a comparable PPC. Like an old house with multiple additions and a sagging foundation, it should be demolished to the ground and rebuilt from scratch. That's exactly what Intel will be doing with the big cash pile they have accumulated. Look for the introduction of the Broccoli chip sometime in the year 2004.
Meanwhile, may the PPC inherit the earth, or at least expand its market share dramatically. If it does it will be no thanks to Hal or Chiat/Day.
Your comments are welcomed.
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Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!
Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.