Apple's Interest In Gaming Isn't Casual

Apple appears to be preparing an all-out assault on the handheld gaming market, moving to snap up gaming industry insiders from Microsoft to go with its growing team of graphics-chip specialists.

News that Apple has poached Richard Teversham from Microsoft's Xbox business this week is only the latest sign Apple has gotten serious about the gaming business. Teversham, who was senior director for insights and strategy at Microsoft's Xbox Business, drove the "three year strategy for the Xbox business" in Europe, the Middle East and Asia, according to his LinkedIn profile.

Earlier this week Apple ( AAPL - news - people ) hired Bob Drebin, chief technologist at Advanced Micro Device's graphics group and the creator of the Nintendo ( NTDOY.PK - news - people ) Gamecube's graphics processor.

That move came as IBM ( IBM - news - people ) chip designer Mark Papermaster began his role as head of Apple's iPod business last month after a long legal tussle with IBM.

Apple is also putting some of its huge pile of cash into semiconductor technology. In December, Apple purchased 3.6% of U.K.-based ImagInation, licensing its PowerVR graphics technology. And last year Apple purchased processor designer PA Semi for $378 million (See "Apple Buys Chip Designer ").

Where will those investments be put to work? Apple Chief Executive Steve Jobs said in an interview last year that he plans to put his PA Semi designers to work building silicon for the company's iPhones and iPods. And while Apple keeps its hardware roadmap to itself, iPhone developers such as Damon Allison figure the iPhone and iPod's hardware will evolve in at least three areas.

First, the iPhone will almost certainly get a better camera and multi-media capabilities. That could unleash a new generation of applications that integrate video and still images into games and social applications, as Nintendo's new DSi has done.

Second, sooner or later the iPhone and iPod touch will get a new, faster processor, most likely an ARM-based design customized by Apple's in-house designers. The result will be snappier, better looking games.

Third, Apple will experiment with new form factors, launching a netbook or tablet computer that may use the same software that powers the iPhone and iPod touch. Such a device might be a terrible phone--it's hard to imagine shoving a 10-inch screen in your pocket--but it could be an ideal platform for games and social networking.

Of course, guessing what Apple will do next is a tricky business. The problem with Apple is that while it appears to plan long-term--keeping projects such as its 2005 shift to Intel ( INTC - news - people ) processors under wraps for years-- it says very little about even its short-term plans.

However, talk to a few of the thousands of developers who have flocked to build software for Apple's iPhone since last year and they'll say that Apple's instructions have always been very clear: Build your applications so that they're compatible with different screen resolutions and screen sizes.

"Apple has told us from the beginning to be sure to write our new software in a way that will accommodate different resolutions and screen sizes," Tapulus Chief Executive Bart Decrem says.

Translation: Today's iPhone applications will be appearing on bigger, sharper displays sometime in the future.

And those developers are building applications that are wildly different from the quick and casual games that have appeared on mobile phones in the past.

That's in part because of the device's lack of buttons. Neil Young, chief executive of gaming startup Ngcomo, is betting that the iPhone's touch screen can handle more complex, fast-moving games than are found on today's mobile phones or handheld gaming consoles possible. "You've got a lot more fine control," Young says. "It is a very precise interface."

So he's betting big on a pair of games based on genres that have had mediocre success, at best, on small gaming devices. "Live Fire," slated for later this year, is a fast-moving shoot 'em up. Then there's "Star Defense," a real-time strategy game where players protect a planet from swarming invaders.

Such games are certainly a preview of what's to come as developers continue to explore the iPhone's possibilities. They might also be the best hint at where Apple's hardware could go next.