It’s funny how OEMs view semi companies and how semis view OEMS. There is tension on both sides as OEMS think the semis try and take credit for their insights and customer proximity and take all the profit, and the semis think the OEMs lack strategic clarity and don’t invest enough in IP.

All this time spent at OEMs and chip companies hopefully gives me some unique perspective on how Apple is disrupting semiconductors. I’d like to talk about why Apple is doing it, how they’re doing it, and its impact on the semi space.

Mini-computers the last bastion of broad, custom OEM silicon

Mini-computers were the big last wave of OEMs that designed a lot of their own silicon. NCR made SCSI chips. DEC had Alpha.  PCs, aside from the very beginning, were dominated by Intel, Motorola, and VLSI. Historically, consumer OEMs like Apple were never willing to make the big investments, nor did they have the people or IP it took to field leading-edge silicon. Sure, there are some exceptions, but they’re just that, exceptions. Toshiba and Sony ultimately failed at doing both. Samsung today really is an anomaly as a company who can do both successfully as they are in smartphones and flash memory in their own fabs. 

Apple currently buys more silicon than any other vendor but also designs more silicon than any other vendor, too. And their silicon, especially their Fusion SoCs and CPU architectures, are best in mobile class in CPU performance and very competitive in GPU performance.

Why Apple wants to rule silicon

So why would Apple take on so much risk by designing their own silicon for their most profitable products, iPhone and iPad? I mean, if they made one bad move, they could lose out on months of sales. It’s simple, Apple takes this risk because they need differentiation and cost reduction via vertical integration. Apple believes that by owning iOS, the iOS ecosystem, and now the silicon, it can deliver a better user experience. And knowing that Apple can’t really play at the lowest price points, vertically integrating lowers their cost, enabling them to more profitable hit lower price points.

Has it worked for differentiation? I’d say it has worked so far. Apple has consistently cranked out unimaginable improvements in CPU and GPU, 30 to 40% improvements each new product. That’s unheard of, particularly with CPUs at the same power use. Competitively, Apple dominates in single-threaded CPU performance, is competitive in multi-core CPU performance and has competitive GPU performance.  Connect the silicon to the iOS and ecosystem and you now have a very good mobile experience. Apple can’t claim dominant GPU or even participation in LTE silicon design, but we’ll get to that later.