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-architecture processors are generally used in products other than modern smartphones or handheld computers.
(Credit: Power.org)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.
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
The judge is clearly a moron.
These sorts of clauses need to be made illegal in all 50 states.
your statement is absolutely absurd. Perhaps your definition of Hardware Company is different from the norm. Designing and developing their own chips has already made it a hardware company.
At best they are an OEM that has their own OS.
Intel is a hardware company, so is nvidia, ATI, ASUS, etc.
Apple is not.
Maybe you mean they aren't a semiconductor company, but even that is not true, as they design some of their own chips. They outsource the manufacture of their custom designed chips to silicon foundries, just like other chip vendors do. The big difference, however, is that Apple doesn't sell their chips to anyone else.
In fact, Apple is easily the best hardware company in the world. They combine their hardware with very desirable software. I'm not saying they're perfect (I could come up with a long list of changes), but they do a much better job on both ends than their competitors, which is why they are so dam* profitable.
Though it seems rather unlikely that Apple would port it's 2-3 year old ARM version of the iPhone/iPod Touch OS to Power (see: http://news.cnet.com/8301-13579_3-9965854-37.html?tag=mncol).
I tend to trust Tom, which is why I went back to cite those articles. It seems to me this is more about power wrangling on IBMs part, Apple stole one of it's higher ups and they aren't happy. Given the history though I would be extremely surprised if Apple was considering anything to do with the Power Architecture. I mean they only publicly went Intel 3.5 - 4 years ago, if I recall correctly. Just my two cents.
But it's been pretty clear that Apple is thinking ARM with its P.A. Semi people, based on a LinkedIn profile of a P.A. Semi engineer, a probable ARM architectural license acquired by Apple, and court documents filed in the Papermaster case that reveal IBM's Power license with P.A. Semi was amended after the company was acquired by Apple to prevent P.A. Semi from developing new lines of processors based on Power.
http://news.cnet.com/8301-13579_3-10041809-37.html?tag=mncol
http://news.cnet.com/8301-13579_3-10002705-37.html?tag=mncol
And btw, Don Dobberpuhl, the founder of P.A. Semi, designed the old StrongARM processor, a derivative of the ARM architecture.
If Apple was to port back to Power, as well, all those iPhone applications would have to be redeveloped, and for no real solid reason: it doesn't seem that anybody has chosen to use Power in a smartphone.
IBM invested a lot of effort to make PowerPC work in embedded systems. Their 4xx series even had a version specifically targeted for cellphones, PDAs and similar applications (e.g., the PowerPC 405LP). AMCC has subsequently bought the 4xx business, but IBM still owns much of the IP and continues to develop the Power architecture.
In any case iPhone is just *one* area where Apple might overlap Power-based businesses. For example, there are set-top boxes with PowerPC SoC, which competes with the AppleTV. There are wireless routers using PowerPC, which competes with AirPort. Etc.
Not to mention that Apple might enter the IC business itself. Ie still don't know why Apple purchased all of P.A. Semi -- instead of just hiring some key engineering employees and/or licensing IPs. What are those P.A Semi sales guys doing at Apple these days? Selling MacBooks?
Then what is IBM's problem? The most likely answer is to enforce their comprehensive (some say overbroad) non-compete agreement, to control upper management.
This whole problem could be solved in negotiation...and probably will. It would save face on both sides, and a modified non-compete could leave IBM with its executive agreements intact and untested in court. After all, long before it reaches trial, the one year restriction in Papermaster's contract will have expired, and the legal issues will have become moot.
- by jragosta November 25, 2008 7:13 PM PST
- There's a lot of misunderstanding here. The court didn't rule that IBM WOULD be irreparably harmed by this guy joining Apple. Instead, they ruled that IBM had shown that the harm would be irreparable IF IBM WINS THE CASE and therefore, IBM is entitled to keep him from joining Apple until the case is settled.
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(15 Comments)This is only round one.