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Google CEO leaves Apple board as companies compete

August 04, 2009|Alex Pham

In Silicon Valley, they call it "co-opetition." But in Washington, some see it as conflicts of interest.

On Monday, Google Inc.'s chief executive, Eric Schmidt, agreed with federal regulators and announced he had stepped down from his position as a board member of sometime rival Apple Inc. The move came after months of scrutiny by federal officials over his dual posts.

"I have very much enjoyed my time on the Apple board," Schmidt said in a statement. "It's a fantastic company. But as Apple explained today, we've agreed it makes sense for me to step down now."

Apple CEO Steve Jobs, in a statement, said the two reached their decision because Schmidt's effectiveness as a board member "will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest."

The news did not surprise analysts who have been tracking the increasing overlap in the businesses of the two companies whose headquarters are just nine miles apart in Silicon Valley, with Google in Mountain View and Apple in Cupertino.

"This was inevitable," said Scott Kessler, equity analyst with Standard & Poor's. Schmidt's resignation is "an acknowledgment by the two companies that they are more competitors than allies at this point."

Just 2 1/2 years ago, Schmidt joined Jobs onstage in San Francisco to announce Apple's first iPhone. Schmidt, who joined Apple's board in August 2006, joked about merging the two companies and calling it "AppleGoo," citing the compatibility in corporate cultures.

But the relationship became tense in November 2007 when Google unveiled its Android operating system for mobile phones and other devices. In September, Google introduced its Chrome Web browser. Just last month, Google announced plans to release an operating system in 2010 for lightweight notebook computers.

All three compete with Apple's products, including its iPhone operating system, Safari Web browser and upcoming Snow Leopard computer operating system for Macs.

In May, Google disclosed that the U.S. Federal Trade Commission's Bureau of Competition had launched an investigation into Schmidt's dual roles.

Schmidt's resignation, however, does not automatically resolve the matter with the FTC, which on Monday said it would "continue to investigate the remaining interlocking directorates between the companies." Another Apple board member, former Genentech Inc. CEO Arthur Levinson, is on the board of Google. And former Vice President Al Gore is both an Apple board member and a senior advisor to Google.

Investors viewed the break-up favorably, nudging Apple's shares up $3.04, nearly 2%, to $166.42. Google's stock gained $9.16, also 2%, to $452.21.

Technology companies often ruthlessly compete in some areas while harmoniously collaborating in others, making them "frenemies" in a complex web of relationships. Google, for example, continues to provide its mapping and Internet search service for iPhone users.

But even by Silicon Valley standards, the conflicts between Google and Apple became untenable. The relationship reached its peak awkwardness last week when Apple rejected Google's request to distribute its Google Voice application for Apple's iPhones via the iTunes store.

On Friday, the U.S. Federal Communications Commission said it would look into Apple's decision to restrict access to a service that could compete with AT&T Inc., the exclusive cellular service provider for the iPhone. Google Voice lets users send free text messages and make inexpensive international calls. AT&T generates revenue from text messages and phone calls.

The recession may be exacerbating these types of conflicts as companies look outside their core businesses to generate growth, some analysts predict.

This is especially true of large, established companies such as Google and Apple, whose primary markets have started to slow down, said Laura Martin, an analyst with Soleil Securities.

"Before, they looked to revenue [from their own products] for growth," Martin said. "Now they're going after each other's businesses."

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alex.pham@latimes.com

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