November 06, 2012

Will Apple Dump Intel?


Let’s go directly on the record – Apple is not going to dump Intel.

Why is this even an issue today? Because a very recent Bloomberg report suggests Apple may very well be thinking of doing so.

Yes, it is most definitely true that Apple continues to have success delivering new “system on a chip” (SOC) processor chips (which in turn have to date been based on ARM-provided architecture designs) for both its iPads and iPhones. Each iteration of the company’s A series processors looks to be faster and less power hungry than every previous generation, but it is a rather long stretch to speak of these processors powering anything more than inherently less powerful tablets and smartphones.

The truth of the matter is that as those devices continue to deliver so much more horsepower, so too must Apple desktops and the high ends of Apple’s various laptop ranges deliver ever increasing levels of horsepower at decreasing levels of power consumption.

Yes, it is also true that during the recent Apple management shakeup CEO Tim Cook did place some emphasis on the semiconductor team having some rather ambitious future plans. In the management shakeup that shifted Scott Forstall entirely out of Apple, Cook appointed Bob Mansfield to head up a new group Apple refers to as “Technologies.”

 This is where the semiconductor team now sits, and it is clear that Mansfield has a directive to be very aggressive in what the team does.

And finally, yes, it is indeed true that Apple is fully capable of making such a major move as shifting processor suppliers. Back in 2003 – 2005, once it became evident that Intel’s processors consumed less power and delivered a great deal more performance (not unlike what Apple has been able to do with the A series processors that power the iPhone and iPads) than the PowerPC processors Motorola and IBM were delivering and would continue to deliver, they were both unceremoniously dumped in favor of Intel. Intel technology has powered Macs ever since, starting in early 2006 when the first Intel Macs were ready to ship. Apple is clearly capable of unceremonious dumping!

These three “yes” issues certainly could, on the face of it, lead one to conclude that perhaps Apple is setting itself up to dump Intel and become its own processor designer. There is a bit more to the pro-dump argument. Creating a common user experience across every Apple platform – from desktop to laptop to tablet to smartphone to iTV (or whatever it ends up being called) – would be easier to pull off if there was a common processor architecture underneath all of it. Mac OS and iOS would become one holistic OS ecosystem, with “mobile” actually being factored out of the equation over time – there would be no mobile designation necessary because everything becomes inherently mobile.

Look and feel and a seamless experience isn’t all that a common platform would help to deliver. New apps would be easier to build and maintain if they only required one code base and a common processor architecture.

Both Mansfield and Craig Federighi – who will now run Apple’s software teams - have a strong interest in morphing the two operating systems into one and in factoring out the “mobile.” Meanwhile, Jony Ive, Apple’s SVP of industrial design (his full name is Sir Jonathan Paul Ive, and note the “Sir”), and the single key to Apple’s overall hardware look and feel, is now also in charge of all things having to do with the human interface (HI). No doubt he will work closely with Mansfield and Federighi on HI - although whether or not Mansfield and Federighi will be allowed into Ive’s ultra-special labs remains in serious doubt.

Design…and Manufacturing

Intel spent nearly $11 billion on new fabrication plants and equipment last year. It also spent $8.4 billion on R&D. We believe Intel has the best chip manufacturing technology on the planet, and the company is well ahead of its competitors on such capabilities. In fact, the only other semiconductor possibility that we can think of is Samsung – and we all know that aside from Samsung manufacturing the current A6 series chipset, things aren’t exactly rosy between Samsung and Apple.

Where would Apple turn to for processor manufacturing should it decide to dump Intel? Well, there is China – but this option can produce all sorts of issues we don’t have the space to outline here. The Bloomberg article suggested Taiwan Semiconductor Manufacturing as a possibility – we don’t see it.

Japan might be a possibility (especially as Apple turns to the likes of Sharp for more displays). Perhaps Apple should acquire Sharp outright – Sharp is in relatively dire straits and needs help – so why not? Simple – although Apple has picked up several small semiconductor players, a Sharp would be a huge distraction, and exactly not what Apple needs to focus on at a time when it needs to focus on next generation innovation.

It will be a combination of highly reliable US-based manufacturing and new chip designs (possibly chip co-designs) that we believe will keep Intel and Apple joined at the hip for many years to come. Intel must deliver on the designs – faster, lower power, SOC chips that perhaps Apple can leverage for next generation smartphones and tablets we don’t yet know anything about.

Our money says that Apple will stick with Intel, and will deliver an entirely new collection of smart devices (not specifically mobile devices) that transcend all of its product lines. Mansfield’s teams can, should – and we believe will - collaborate with Intel.

Innovation is Desperately Needed!

Apple sits at the top of the food chain. Sure, Android may now claim 75 percent global market share but the vast majority of that market share is on the low end, low margin side of the smartphone equation. Apple could not care less about it – it only cares that its share of the number one spot on the highest end – and highest margin side - of the mobile device list belongs to it. That is what the iPhone and iPad give Apple.

The problem is that being at the top of the chain means that there are only a few directions open to Apple. The first of course is that when you are at the top there is only one other direction to go – down. Many pundits are already pointing to the fading fates of IBM as the world transitioned to Microsoft, then Microsoft as the world transitioned to Apple. Is Apple due for a fading fate? It can fall into that trap – patent lawsuits, among such things as potentially becoming overly distracted with developing core processor designs, are great ways to make this happen.

The second direction is to raise the bar yet again. But Apple can no longer make this happen with its current lineup. The bar with its current crop of products has been permanently set and cannot and will not go any higher. Let’s face it, as beautiful and as “to lust after” as the new iMac and the retina display laptops are, they don’t raise the bar or drive consumer fervor. This is Apple’s greatest problem at the moment.

This latter issue is also the reason Microsoft may now finally be in a position to make the serious move with all things Windows 8 – especially now that it owns the common OS ecosystem and interface, and the ability for all Win 8, Win RT and Win Phone 8 products to run Win 8 apps. It is already at the cusp of offering that seamless user experience. No one need wait until 2017 for it!

So another Apple article, and yet another article that closes with the warning that Apple must innovate to succeed. Even with $120+ billion in cash in hand there is no guarantee Apple can pull off the next bar-raising suite of innovations.

We anticipate Apple leveraging its relationship with Intel to work towards innovation. There will be no unceremonious dumping here.




Edited by Braden Becker



Related Tags

Intel    Microsoft    Apple
IBM    Tablet    Smartphone

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