Apple Computer Inc and Microsoft Corp ended a bitter rivalry on Wednesday by saying Microsoft would invest $150 million in the troubled computer maker, shocking executives from Silicon Valley to Wall Street.
Apple also replaced all but two of its directors, but stopped short of naming a new chairman of the board.
The announcement, delivered by Apple co-founder Mr Steven Jobs to thousands of Apple customers here, could be crucial for the survival of Apple, which helped popularise the personal computer. It also underscores how quickly things change in California's Silicon Valley.
For years, Apple and Microsoft competed furiously, with each company trying to destroy the other. But Microsoft quickly got the upper hand when it agreed to license its Windows operating system to personal computer makers while Apple tried to hold on to its own technology.
But after more than $1.6 billion in losses over the past 18 months, Mr Jobs, who recently returned to Apple as a special adviser, said the time had come to put an end to the feud.
"If we want to move forward, we have to let go of a few things," he told the MacWorld trade conference. "We want to let go of this notion that for Apple to win, Microsoft has to lose. We need all the help we can get. We better treat Microsoft with a little gratitude."
Under the deal, Microsoft will invest $150 million in Apple stock and develop more programmes for the Macintosh. The world's largest software company will develop a new version of its Office package of business software, widely used in the corporate world, for the Macintosh.
Microsoft will also include its Internet browser in the Macintosh operating system.
Jobs, serving as a strategic adviser while Apple looks for a chairman and CEO, said Microsoft's stake would be a non-voting interest in Apple and that Microsoft agreed not to sell its shares for at least three years.
Apple also revamped its board, which had been heavily criticised by shareholders for fumbling on long-term strategy.
The new members are Mr Jobs, Oracle Corp Chairman, Mr Larry Ellison, former International Business Machines Corp, Chief Financial Officer, Mr Jerome York and Intuit Inc Chief Executive, Mr Bill Campbell.
Three current board members-including early Apple investor and one-time Chairman Mr AC "Mike" Markkula, Ms Katherine Hudson and Mr Bernard Goldstein - resigned. Two board members, DuPont Chairman Mr Ed Wollard and Hughes International President Mr Gareth Chang, will remain.
News of the alliance and the board changes brought jeers from some Apple loyalists at the conference, but it was a hit on Wall Street, where Apple stock surged to its highest in more than a year. The stock jumped $6.56 to $26.31 on Nasdaq, where it was the most active with 37.4 million shares traded.
Investors and analysts said the changes could be the best move Apple has made in recent years to halt its slide. While getting help from Microsoft will not endear die-hard Macintosh fans - who say the Mac is easier to use than Windows-based PCs - it could goad the rest of the industry and corporate computer users to continue to support Apple.
Microsoft Chairman Mr Bill Gates, who appeared at the conference via satellite to boos and applause from the audience, said, "We think Apple makes a huge contribution in the computer industry . . . And we think it's going to be a lot of fun helping out."
While Apple and Microsoft have become bitter enemies, the two also have collaborated for almost 20 years. Microsoft was one of the first companies to develop software for the Macintosh and previous models such as the Apple II.
"(Microsoft) is doing it because they make a lot of money off the Mac customer," said Mr Pieter Hartsook, editor of the Hartsook Letter and an Apple watcher, noting there are eight million Mac customers. He added the investment was "spare change" for Microsoft.
Mr Frank Huang, chairman of UMAX Computer Corp, a company that makes Apple clones, said he was pleased by the pact.
"It's a new Steve Jobs," Mr Huang said. "He wants to save Apple. It's the end of the visionary Steve Jobs. It's the practical Steve Jobs."
The pact "should ensure Apple being around for a while," said Mr Arnie Owen, managing director at investment bank Cruttenden Roth. Microsoft "is the biggest guy you could get to support you."
Analysts said the investment was a shrewd way for Mr Gates to deflect criticism that Microsoft was stifling competition. Federal antitrust regulators have been investigating Microsoft since 1989. A healthy competitor such as Apple would make it tougher to prove Microsoft has a monopoly in the software business, analysts said.
Apple Chief Financial Officer Mr Fred Anderson said Apple was not opposed to licensing new versions of its Macintosh operating system but noted the deals must provide value.
