NEW YORK/SAN FRANCISCO 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.
Schmidt's departure on Monday, which Apple CEO Steve Jobs said was mutually agreed, had been expected by some analysts amid an intensifying regulatory focus on Google and its relationship with its Silicon Valley peer.
But the U.S. Federal Trade Commission said it will continue to investigate the relationship between the two boards, which still share a director: former Genentech CEO Arthur Levinson.
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. The two had long been seen as allies against Microsoft Corp's dominance.
Jobs said in a statement that with Google's introduction last month of its Chrome Operating System, "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 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'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: "...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 exit as positive, as it may presage a spot for Chief Operating Officer Tim Cook to the board. His broader involvement may lessen the chance he will agree to being poached by a competitor.
Cook oversaw day-to-day operations for Apple while Jobs was away on medical leave.
TIES RUN DEEP
Ties between Apple and Google run deep. Google director Ann Mather was CFO at animation company Pixar, while Jobs was CEO. Former Vice President Al Gore is an Apple board member and also a senior adviser to Google.
But JMP Securities analyst Samuel Wilson said Schmidt's resignation was a sign the companies' relationship was evolving into one of keen and open rivalry.
"It's clear the two companies are going to start competing against each and usually in Silicon Valley, that means it gets ugly," he said.
Apple's and Google's shares closed higher, with Apple rising 1.9 percent to $166.43 and Google shares up 2.1 percent to $452.21. Microsoft shares gained 1.3 percent.
Google, viewed by some as a monopolistic giant in the making, is no stranger to antitrust scrutiny.
It is the subject a Justice department probe into its efforts to create a huge online digital library and abandoned a deal to cooperate on search with Yahoo last year partly because of the threat of regulatory scrutiny.
On Monday, the FTC said it will keep looking into whether ties between the boards of Apple and Google violate federal antitrust law, which prohibits a person from sitting on the board of two companies if it reduces competition between them.
John Briggs, co-chairman of the antitrust group at law firm Axinn, Veltrop and Harkrider, said "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, contacted through Genentech, declined comment.
An Apple spokesman declined to comment beyond the statement and would not say if Apple would name Schmidt's replacement.
His exit comes after the Federal Communications Commission said it was looking into Apple's decision to reject Google's voice application for the iPhone. The application is seen as a threat to the voice services that come with the iPhone, carried exclusively in the United States by AT&T Inc.
The FCC sent letters of inquiry to Apple, Google and AT&T on Friday, linking the request to upcoming proceedings on wireless open access and handset exclusivity.
Briggs said questions about the relationship between Apple and Google will continue 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," Briggs said. "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 Phil Berlowitz and Andre Grenon)