As some of you may be aware, it is possible to run Apple's Mac OS X operating system on regular PCs. Apple's licensing agreement currently does not permit this but its viability has been amply demonstrated (search for "OS X on x86"). The conventional wisdom is that Apple doesn't want to start licensing it's OS X / Mac operating system for PCs because they make a lot of money selling high margin Macintosh hardware and an OS X for PCs would cannibalize this. This analysis will show that there is potential to generate in excess of USD 3 billion in additional income for Apple, nearly doubling its latest income figures.

Let us start by assuming a USD 100 price tag for each home license. Based on OS X's simplicity, ease of use, superior features and "Mac halo" this is a realistic price when compared to Microsoft's Vista offering.

Let's assume that Apple is able to convert 3% or 30 million of the installed base of 1 billion PCs every year, that would add 3 billion dollars in revenue annually.

With over 257 million PCs expected to ship in 2007 (according to Gartner), potential revenues from an assumed 5% market share in this segment would be around of USD 1.25 billion, leading to a grand total of 4.25 billion dollars in potential additional revenues.

A price tag of USD 500 million for the the cost of sales, R&D and maintenance of such a program seems a fair assumption.

We now need an estimate for the amount by which this business might cannibalize existing Macintosh sales. The Macintosh computer is classy, fashionable and offers leading edge technology seldom found in high end PCs. Based on this it is fair to assume that the new operating system is unlikely to cannibalize the existing Mcintosh business significantly. Let us assume a reduction of USD 500 million in revenues on this count.

That would leave Apple with USD 3.25 million in potential extra annual income, which would mean almost a doubling of Apple's current annual income. Also all these new computers with Apple operating systems on them would generate additional revenues for Apple software like iWork (an office productivity suite) and iLife (a multimedia productivity suite).

The economic logic therefore seems to be self explanatory. So the important question has to be when is Apple going to get into this business? With Apple just trying to break into the mobile phone market with its iPhone, it may be a while before they decide to open a new front where they will be going head to head with Microsoft, a very formidable advisory. If a good part of 2008 is used to establish the phone business, while consolidating the existing businesses and preparing an operating system product for the broader PC market, then the Fall of 2008 is possibly the earliest reasonable launch date.

Do you think Apple is already working on a strategy to introduce its operating system into the broader PC market? Share your views right here.

Please note that this analysis is speculative and should not be used as a basis for investment decisions.