Apple

Updated at 12:30 p.m. PST with more details.

Apple announced on Tuesday that former IBM executive Mark Papermaster has resolved his dispute with IBM over a noncompete agreement and will start leading Apple's iPhone group on April 24.

IBM had sued Papermaster for allegedly violating the terms of a noncompete agreement in agreeing to join Apple as senior vice president of Devices Hardware Engineering, claiming that Papermaster would be in a position to divulge important IBM trade secrets. The two parties exchanged briefing papers for a few months but apparently found a way to settle their differences.

Bruce Meyer, Papermaster's lead attorney at Weil, Gotshal & Manges, declined to comment on the settlement and referred all inquiries to Apple, which did not immediately return a call seeking comment.

IBM issued a statement concerning the Papermaster suit.

IBM and Mr. Papermaster have now agreed on a resolution of the lawsuit under which Mr. Papermaster may not begin employment with Apple until April 24, 2009, six months after leaving IBM, and will remain subject thereafter to all of his contractual and other legal duties to IBM, including the obligation not to use or disclose IBM's confidential information.

Following commencement of his employment with Apple, Mr. Papermaster will be required to certify, in July 2009 and again in October 2009, that he has complied with his legal obligations not to use or disclose IBM's confidential or proprietary information.

The preliminary injunction will be replaced by a court order (PDF) under which the court will have continuing jurisdiction over this matter, including compliance enforcement powers, until October 24, 2009, one year after Mr. Papermaster's departure from IBM.

The settlement frees Papermaster to replace Tony Fadell, who stepped into a senior adviser role last year, and report directly to CEO Steve Jobs in heading up iPhone and iPod hardware development. The leadership transition has been a bit thornier than Apple would have likely preferred.

After a brief courtship early in 2008 for a different position, Apple identified Papermaster as the right candidate to head up perhaps their most cutting-edge development team in September, and he left IBM a month later to pursue what he called "the opportunity of a lifetime."

But IBM, in what was viewed in part as a message to its employees, sued Papermaster for violating a 2006 noncompete agreement on the basis that Apple and IBM competed in the server and chip markets, even though Papermaster would not have been working in either of those capacities for Apple.

The problem for both IBM, in this case, was that to argue that Papermaster would be in a position to spill its trade secrets, the company would have had to discuss those secrets in front of a judge. And likewise for Apple, in order to prove that Papermaster wouldn't be leading an effort to get the company immersed in chip development for game consoles, it would have had to shed some light on its future plans. Neither company was likely thrilled about that prospect.

A settlement always looked like the most obvious outcome, and that's where Papermaster, IBM, and Apple find themselves Tuesday. As noted above, Papermaster will have to recertify that he will not divulge IBM secrets to Apple as part of the initial agreement, and then do so again in three-month increments until October 24th, the first anniversary of his departure from IBM, when the noncompete agreement expires.

Papermaster will have to get started while Jobs is on medical leave, though Apple has said Jobs, due to return in June, remains involved in "major strategic decisions," and the endgame of this particular dispute probably qualified.

Papermaster's primary background is in chip development, and he spent the last several years involved with IBM's blade server design group. But Apple was most impressed by his leadership skills, noting in a court filing that it "hired Mark Papermaster because he has strong general engineering skills, is an outstanding leader, and because we believe he will be a good cultural match at Apple."

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.

Apple may have a real fight on its hands if it believes Mark Papermaster is the right man to nurture the iPhone.

In an age where employees move between companies as often as relief pitchers change teams, noncompete agreements seem an outdated concept. But lawyers say the noncompete agreement that Papermaster signed with IBM is serious business that demonstrates how companies are increasingly looking to enforce restrictions on their most important employees, and that could force Apple and IBM to share valuable information to make their argument stick.

Getting out of a noncompete
clause isn't easy--unless you live
in California.

IBM is suing Papermaster for violating the terms of a noncompete agreement, which he signed in 2006, when he accepted an offer to run Apple's iPhone group in October. He claims that since he'll be working on a product that does not compete with anything IBM offers, that agreement should not apply. But it may not matter: the agreement he signed contains broad provisions regarding where and how Papermaster could seek employment for a year following his departure from the company, and it's very enforceable in New York, where IBM is based.

The two parties are scheduled to have a status conference later Tuesday, and we could learn as early as then just how determined IBM is to send a message to the rest of the tech industry and its own employees. One sign IBM is taking this case very seriously: It's using longtime legal partner Cravath Swaine & Moore, who represented IBM in the SCO trial, to fight the Papermaster battle.

"These cases are prosecuted as a deterrent to others," said John Siegal, a partner with Baker Hostetler in New York. "In case people are going to be following a high-level executive, (a company) is going to impose limitations to get the rest of the staff to think twice or three times (about leaving)."

Don't fence me in
Covenants not to compete (generally known as noncompete agreements) are perfectly valid everywhere but California, where they have been outlawed. They are generally regulated, however, to make sure they are "reasonably limited to time and space," said Robert Scott, a professor at Columbia Law School and director of the Center on Contract and Economic Organization. That means employers can't keep you on the sidelines for 10 years or allow you to work only on the moon.

The central question surrounding Papermaster's noncompete--and really any noncompete--is whether his activities at Apple would harm IBM. "The court has to find that the noncompete is necessary to protect the interests of the employer," Scott said.

Papermaster signed the noncompete (click here for a PDF copy) in 2006 when after a 15-year career at Big Blue, he joined an "elite" team of IBM managers called the Integration and Values Team (I&VT). He claims the information discussed at the three meetings he attended was "high-level" and didn't involve IBM trade secrets. According to IBM's complaint, however, that group is a collection of 300 senior managers at IBM who are responsible for "addressing the most difficult and important issues facing IBM, such as developing corporate strategy and driving innovation and growth, and I&VT members work with the most sensitive strategic information the company possesses."

But according to an interview that IBM human resources executive Randy McDonald gave just before the company filed suit against Papermaster, I&VT seems more focused on solving the "thorniest" problems that IBM's customers are having integrating technology into their businesses, rather than developing any specific technology. "I&VT is about talking business first," McDonald said during the interview.

Nonetheless, IBM will point out that the agreement covers "any entity that engages in, or owns and controls a significant interest in any entity that engages in, competition with the business units or divisions of the company in which you worked at any time during the two (2) year period prior to the termination of your employment."

So, then do Apple and IBM compete because they both make servers, even though no rational observer of the server market would consider Apple a true competitor to IBM, Hewlett-Packard, Dell, and even beleaguered Sun Microsystems? Do they compete because they both design chips, even though IBM's go into servers and game consoles and Apple's will one day go into iPhones?

It all depends on what the judge considers to be the most relevant issues at hand. "What always happens in these cases is that every company in the world thinks that everything it does is a trade secret," Siegal said. "Under the scrutiny of a judge, that gets winnowed down to real specifics, such as whether the guy was engaged in activities and had knowledge of things that would give Apple an advantage in unfair competition."

And that's where this case could get juicy.

Laying down the cards
"It may also be that this litigation serves some ancillary purpose, that in discovery, one or both of these companies is seeking to find out more about the plans and activities of the other," Siegal said.

IBM and Apple may not want to
share their road maps for the next
year in a courtroom.

IBM will likely have to explain to the judge exactly how Papermaster's specific knowledge harms Big Blue's short-term interests by laying out just where those interests lie. Apple could have to do the same thing to prove that it doesn't plan to use that knowledge to start a new business or improve an existing one, even though it had Papermaster sign an agreement that he would not disclose any confidential IBM information to Apple upon joining the company. "Sometimes in these cases, competitors find out a lot about each other," Siegal said.

As a result, these cases rarely proceed to trial, since the preliminary stages tend to drag on and often the "secrets" at issue aren't worth the prolonged involvement by upper management. Papermaster's hope is that the judge agrees with his claim that nothing in his proposed role at Apple overlaps his role with IBM.

"The court (could then) put restrictions on his conduct for Apple that falls short of an outright prohibition on his working for Apple," Siegal said, satisfying the letter of the noncompete by prohibiting him, for example, from running the XServe group or the P.A. Semi chip team for a year but allowing him to run the iPhone group.

Noncompete clauses don't appear to be going anywhere, despite California's decision to ban them earlier this year. If anything, companies are getting bolder about their use of restrictions like noncompete clauses, Siegal said, which could start to affect more and more of those executives looking to move on from deteriorating situations. And if you refuse to take that next great job because the company requires a noncompete, the employer will likely find somebody who won't hesitate.

"While most states' laws say they are disfavored as a matter of law and policy, the fact is they are very often enforced," Siegal said. "I'm not certain there is a (growing) trend toward enforcement, but there is a trend toward using these agreements and seeking to enforce them."

Apple's iPhone man-in-waiting, Mark Papermaster, has filed a countersuit against his former employer in a dispute over a noncompete agreement.

InformationWeek spotted the court documents filed late Thursday in federal court in New York claiming that IBM's noncompete agreement with Papermaster shouldn't apply to his potential employment at Apple, since the two companies are not competitors in the arena where Papermaster will be employed. In October, Apple hired Papermaster to replace outgoing iPod executive Tony Fadell and lead the development of future versions of the iPhone, but IBM is suing to prevent him from working for Apple for a year.

Papermaster's counterclaim focuses on the clauses of the noncompete agreement, arguing that it is too broad and would not permit Papermaster to work for any technology company anywhere in the world for a year following his departure from IBM.

The "Business Enterprise" restriction is unreasonably broad in that it purports to restrict Mr. Papermaster from going to work for any company that engages in competition with his former business unit to any extent, even if Mr. Papermaster will not be working for the part of the company that does so. Likewise, the "significant competitor or major competitor" prong purports to restrict Mr. Papermaster from going to work for one of these companies even if the work that Mr. Papermaster will be doing is completely unrelated to the work he was doing at IBM. These provisions are not necessary to protect any legitimate interests of IBM.

The Noncompetition Agreement is also unreasonably broad in that it purports to impose an unreasonably lengthy time limitation. In the world of technology, any trade secrets that Mr. Papermaster possesses would lose their value prior to the expiration of a year. The purported geographic scope of the "Restricted Area" is similarly unreasonable. Mr. Papermaster has resided and worked in Austin, Texas for the past 17 years, yet the language of the Noncompetition Agreement purports to restrict him from working anywhere in the world based on the global scope of IBM's business. Again, these restrictions are not necessary to protect any legitimate interests of IBM.

IBM has successfully obtained a preliminary injunction preventing Papermaster from reporting for duty at Apple, but it seems that's a pretty standard decision in cases such as these. The two parties are scheduled to have a status conference regarding the case on Tuesday.

Apple has removed the biography of its future iPhone leader from the company Web site.

You can still find Apple's press release from last week announcing the hiring of Mark Papermaster on the site, but the brief bio once posted among those of Apple's other senior executives disappeared Monday. It's visible through the magic of Google's caching technology, should you want a look.

An Apple representative did not immediately return a call seeking comment as to why Papermaster's bio was pulled, but this in all likelihood is the result of the preliminary injunction preventing Papermaster from starting work at Apple. His former employer, IBM, is suing Papermaster in federal court in New York for violating the terms of a noncompete agreement, and the judge overseeing the case ordered Papermaster not to report for his first day running Apple's iPhone and iPod group.

Updated at 4:55 p.m. PST with comment from Apple.

A judge has granted IBM's preliminary injunction aimed at preventing former executive Mark Papermaster from reporting for duty as Apple's new iPhone leader.

Apple hired Papermaster as the new head of iPhone and iPod development earlier this month, but IBM sued Papermaster last week claiming he is violating the terms of a noncompete agreement with IBM in accepting the job at Apple. U.S. District Court Judge Kenneth Karas ordered Papermaster on Friday to "immediately cease his employment with Apple Inc. until further order of this court," according to a filing made public Friday afternoon.

Papermaster had attempted to claim that since he will be heading up Apple's mobile computing division, his role is not one that conflicts directly with IBM's businesses. But something convinced Judge Karas otherwise, although he declined to elaborate, citing "reasons that will be stated in a forthcoming opinion."

An IBM representative was cheered by the outcome, as you might expect. "We are pleased that Judge Karas agreed to our request for a preliminary injunction. Mr. Papermaster's employment by Apple is a violation of his agreement with IBM against working for a competitor should he leave IBM," the company said in a statement.

Apple likewise remained upbeat. "We will comply with the court's order, but are confident that Mark Papermaster will be able to ultimately join Apple when this dust settles," it said in a statement. A representative for Papermaster did not immediately respond to a request for comment.

Judge Karas scheduled a status conference for November 18th "at which it will discuss, and encourages the parties to discuss beforehand, an expedited schedule for discovery and trial."

Mark Papermaster was chosen to lead a team developing future iPhones, even though the company worried about his lack of direct consumer electronics experience.

(Credit: Apple)

Apple knew full well that Mark Papermaster would have to learn his new role as iPod and iPhone chief "on the job" when it hired him.

Papermaster's former employer, IBM, filed a lawsuit against him last week, claiming that he broke the terms of a noncompete contract with IBM in accepting a high-profile job with Apple. InformationWeek spotted Papermaster's formal response Friday morning, in which he declares that the two companies are not competitors and that his experience at IBM is not the primary reason why Apple sought his services.

The court filings reveal the interesting process Apple used to hire Papermaster to replace Tony Fadell, a longtime executive in charge of Apple's iPod group. And contrary to speculation, it appears that Papermaster--a well-respected chip executive--will have nothing to do with chip design at Apple on Day 1.

Apple began searching within the consumer electronics industry in October 2007 for a lieutenant and eventual successor to Fadell, but it couldn't find anyone it liked, according to the court filing. Instead, the company decided to search for an executive with strong overall technology skills who would be a good fit inside Apple, modeling the search on the process used to find current Mac hardware leader Bob Mansfield.

Mansfield was the one who suggested Papermaster as a candidate, though he didn't exactly roll out the welcome mat for his college buddy. On a list of potential candidates sent to Vice President of Human Resources Danielle Lambert (who is married to Fadell), Mansfield described Papermaster: "Mark fits the bill wrt (with respect to) systems and semiconductor understanding, but in every other way is a long shot."

Nonetheless, he was brought into Cupertino in February 2008 to interview with CEO Steve Jobs and Fadell. Apple liked Papermaster in many ways, but it wasn't sure that his experience in server development was the proper background for the role--especially in light of the fact that in February, Apple was working hard on getting the iPhone 3G out the door, and it wanted someone who could hit the ground running.

However, as Lambert said in a statement attached to Papermaster's response, "nobody questioned Mark's ability to lead a development team." The company offered him a role designing laptops, and while Papermaster was intrigued by the possibility of working at Apple, he wasn't all that crazy about that particular role.

But after Apple got this year's crop of iPods out the door in September, the search for Fadell's replacement intensified. Papermaster was offered that role, and he jumped at what he called "the opportunity of a lifetime."

As Papermaster sees it, his role is fairly narrow: he's tasked with overseeing the development of iPod and iPhone hardware. He won't be working on personal computers, he won't be working on servers, and perhaps most surprisingly, he won't be working on microprocesors.

Papermaster's court filing says the P.A. Semi team acquired by Apple earlier this year is part of the group managed by Mansfield, not part of the iPod and iPhone group. That's a surprising organizational decision, given that Jobs has said publicly that P.A. Semi was brought into the fold to work on chips for the iPhone and iPod Touch.

Despite a career spent developing chips at IBM, Papermaster supposedly won't have anything to do with Apple's budding chip team.

(Credit: CNET)

The filing notes that Apple currently acquires iPhone microprocessors from an outside vendor, widely believed to be Samsung. Unsurprisingly, it stops short of mentioning whether or not Apple plans to eventually design and develop its own microprocessors for that product, as seems evident.

In a declaration accompanying the formal court response, Papermaster notes that "it is also my understanding that I will not be responsible for developing the microprocessors that are used in the iPod and iPhone products, but rather those will be procured from sources outside my group." Whether those sources are outside Papermaster's group but inside Apple is left unstated, but Papermaster also says, "I will be acting solely as a product manager--I am not being hired to develop technology across product lines."

An Apple representative declined to comment on Apple's organizational structure or the court filings, only to say, "We think IBM will see that the iPod and iPhone are not competitive with their business." IBM likewise declined to comment on Papermaster's response beyond the statements they have already made regarding their intention to "vigorously" pursue the case against Papermaster.

Papermaster's argument against the lawsuit is that since Apple and IBM aren't true competitors, and since he isn't working on the small slice of Apple's business--servers--that does overlap with IBM's business, the noncompete should not apply. Likewise, he believes that he's not in a position to divulge any IBM trade secrets because "Mr. Papermaster's position at Apple will involve a completely different product using different technology that Mr. Papermaster will have to learn on the job."

It's quite possible that Papermaster's lawyers are deliberately downplaying his connections to Apple's budding chip design team in order to make this lawsuit go away, since the chip angle is IBM's only real argument. Even if Papermaster isn't directly involved on a day-to-day basis with the P.A. Semi team, he will be in charge of specifying the hardware requirements for the iPhone, and part of that includes the chips that go into that system.

Apple appears to be making a bit of a gamble with this hire, entrusting the care of what has become its most important product to an executive who, though well-regarded, has no experience working inside the fast-paced consumer electronics industry. And the most relevant part of his IBM experience doesn't appear to be part of his marching orders at Apple.

But the company believes that his leadership skills will serve him well at Apple, according to one of the court filings: "Apple has hired Mark Papermaster because he has strong general engineering skills, is an outstanding leader, and because we believe he will be a good cultural match at Apple."

Tony Fadell (pictured here), the head of Apple's iPod group, is stepping down to make way for the hiring of IBM chip guru Mark Papermaster.

(Credit: Apple)

Apple is ready to start a new chapter in the history of the iPod with a new leader for that group.

The company's selection of Mark Papermaster as the new head of iPod and iPhone hardware engineering points the way toward a more sophisticated future for Apple's mobile computers, as Apple has been hinting for over a year. The veteran chip and system designer will be tasked with overseeing the transformation of the iPod lineup from relatively simple music players to complex and powerful mobile devices, with the iPod Touch as the first example.

Longtime Apple executive Tony Fadell is stepping down to make way for Papermaster. Fadell's place in tech history is assured; after all, he invented the friggin iPod. Apple said Fadell and his wife, Danielle Lambert, vice president of human resources at Apple, are both planning to spend more time with their family and less time with Apple, although neither is leaving the company completely.

As always with these kinds of high-profile executive moves, the question "jumped or pushed?" comes up. There doesn't appear to be any evidence as yet that Fadell had done anything to put him on CEO Steve Jobs' bad side; while iPod growth has stagnated, that's more a function of market saturation than any wrong decisions made by Apple.

Fadell is credited with having brought to Apple the idea of a hardware music player married to a digital music store. That idea worked out pretty well, turning the iPod into one of the most iconic consumer electronics devices ever created and giving Apple a new direction in the tech and music industries.

But over the past year or so, the definition of the iPod has begun to change. At one point, iPods were all about sleek design and style married to a relatively simple user interface. But Jobs believes that the mobile computers of the future will win or lose the public's heart based on the quality of their software, which means that the plain old iPod is going to need some top-notch mobile hardware.

That's where Papermaster comes in. At first glance, it might seem a little weird to tap a server executive with no consumer electronics experience for one of the tech industry's most visible consumer electronics jobs.

And there's a legal component to this hire as well, don't forget. IBM is suing Papermaster for breaking the terms of a noncompete agreement with the company, and reiterated Tuesday morning its intention to "vigorously pursue this case in court." Its task might be more difficult after Tuesday's announcement, given that Papermaster intends to oversee a category of Apple's business that doesn't list IBM as a competitor.

But Papermaster has spent a career working on the design of powerful chips. During the last decade or so, that field has required a strict focus on energy efficiency; learning how to squeeze more performance out of the chip while reducing or controlling the amount of power needed to run the chip. And for the last several years, he has overseen IBM's blade server business, where strong performance in a tight, constrained package is the name of the game.

The iPod Touch is the first example of how Apple is turning the iPod into a mobile computer.

(Credit: Apple)

This is precisely the challenge facing Apple at this stage of the iPod's evolution. Consumers are not going to go back in time and lust after powerful-yet-bulky handheld devices without any style: just ask anyone trying to sell a Mobile Internet Device. But they're going to want more sophisticated software on their devices; in short, they're going to want to do just about anything and everything they can do on a PC or Mac on a handheld computer.

That's going to require a leader who has a keen understanding of where chip design is headed, and how best to make decisions about the inevitable trade-offs between performance, power consumption, and chip size that categorize that field. It's going to require someone who also knows how to design an entire system that adheres to those principles, someone who can bridge the gap between the chip wizards and the industrial designers.

Future iPods will make their name--one way or another--as computers linked to Apple's enhancements to OS X, the mobile operating system on the iPhone and iPod Touch. As Scott Forstall's group adds sophistication to that software, Papermaster's group is going to have to support those advances with powerful hardware that doesn't compromise battery life or Jonny Ive's design principles.

Fadell may not have wanted to take on such a challenge. The man has plenty of money and little to prove. Alternatively, Jobs may have decided that Apple needed someone with broader system and chip design experience to take over the management of the iPod group. In these early hours, we just don't know.

But one thing is clear. Apple is planning for a future where it treats the iPod and iPhone like it does the Mac, with separate software and hardware engineering teams that work together to design the finished product.

And it's also clear that Apple's definition of hardware engineering extends to the components themselves. The new head of Mac hardware engineering, Bob Mansfield, also has a background in chip design at graphics pioneer SGI. Apple acquired P.A. Semi earlier in the year to focus on chip design for iPhones and iPod Touches.

Earlier this year, we wondered about the future of the iPod. As the year closes, Apple is making its intentions clear: the iPod is growing up.

Apple's iPod chief, Tony Fadell, will step down but remain at the company.

(Credit: Apple)

Apple on Tuesday confirmed reports circulating on Monday night that Tony Fadell, a longtime executive in charge of the company's iPod division, is stepping down.

Fadell will be replaced by Mark Papermaster, a vice president at IBM, who will join Apple as senior vice president of devices, responsible for the company's iPod and iPhone hardware-engineering teams, Apple said.

CNET News first reported last week that Papermaster was set to leave IBM for a prominent position at Apple, though the nature of his role was unknown at the time.

Fadell will remain at Apple as an adviser to CEO Steve Jobs, the company said, adding that Fadell's wife, Danielle Lambert, plans to step down from her position as vice president of human resources at the end of the year, after a successor is found. She will leave the company, Apple said.

"Mark is a seasoned leader and is going to be an excellent addition to our senior management team," Jobs said in a statement Tuesday. And according to a statement Apple issued Tuesday, both executives are "reducing their roles within the company as they devote more time to their young family."