News : Google CEO Schmidt quits Apple board amid scrutiny

By Franklin Paul and Gabriel Madway

NEW YORK/SAN FRANCISCO (Reuters) - Google Inc Chief Executive Eric Schmidt has quit Apple Inc's board of directors, a move that may help defuse some scrutiny of their relationship as they compete in key markets.

The move, which Apple CEO Steve Jobs said was mutually agreed upon, may help them deal with some of the ongoing regulatory scrutiny of Google and its relationship with its technology peer, analysts say.

The No. 1 Internet search company in the United States and the maker of the iPhone and Macintosh now find themselves competing on a number of fronts, including operating systems and the fast-growing smartphone market.

Jobs said in a statement on Monday that with Google's introduction last month of its Chrome Operating System [ID:nN09486625], "now is the right time" for Schmidt to step down from Apple's board. The resignation is effective immediately.

Schmidt, named an Apple director in 2006, had already recused himself from discussions at board meetings that focused on Apple's iPhone, though it was not clear when that began. Google's Android operating system is used in rival smartphones.

Google's Chrome OS will go head-to-head with Microsoft Corp's Windows and Apple's OS X system when it becomes available to consumers in the second half of 2010.

"Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple 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," Jobs said in a statement.

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

Broadpoint Amtech analyst Brian Marshall said the move was necessary with the two companies "increasingly moving down competitive paths."

"It's not surprising to us that he's stepping down. What is surprising to us is that it took three years," he said.

Marshall also said investors could view Schmidt's departure as a positive, as it may lead to the appointment of Chief Operating Officer Tim Cook to the board. His broader involvement might lessen the likelihood he would agree to being poached by a competitor.

Cook oversaw day-to-day operations for Apple while Jobs was away on medical leave.

Both Apple's and Google's shares moved higher in early afternoon Nasdaq trading, with Apple climbing 1.8 percent to $166.35 and Google shares rising 2.4 percent to $453.58.

Microsoft shares also rose, gaining 1 percent to $23.74.

REGULATORY SCRUTINY

The U.S. Federal Trade Commission is looking into whether ties between the boards of Apple and Google violate antitrust laws. Under federal antitrust law, a person is not allowed to sit on the board of two companies if it decreases competition between them. Former Genentech CEO Arthur Levinson is still a director of both companies.

John Briggs, co-chairman of antitrust group Axinn, Veltrop and Harkrider, said Levinson's continued presence on both boards is not an issue that will go away.

"If it would be unlawful for Schmidt to stay on both boards then I would think it would be unlawful for Levinson to stay on both boards."

Levinson did not return calls seeking comment.

An Apple spokesman declined to comment beyond the company's statement and would not say if Apple would name a new director to replace Schmidt.

Schmidt's move comes days after the Federal Communications Commission said it was looking into Apple's decision to reject Google's voice application for the iPhone. The Google application is seen by some as a competitive threat to the voice services that come with the iPhone, which is carried exclusively in the United States by AT&T Inc.

The FCC sent letters of inquiry to Apple, Google and AT&T on Friday. The commission said it was making the request in light of upcoming proceedings regarding wireless open access and handset exclusivity.

Briggs said questions about the relationship between Apple and Google will continue to be raised by regulators, despite Schmidt's stepping down.

"There's always going to be an issue between the two companies. I don't think it mutes out any of the other issues that are floating around ... Google seems to be destined to be under the microscope of the antitrust authorities."

(Reporting by Franklin Paul and Gabriel Madway, additional reporting by Sinead Carew and John Poirier in Washington; Editing by Edwin Chan, Phil Berlowitz)