For the past two decades, Apple's stock prices have been propelled by their heavily-advertised, consumer gadgets such as the iPod, iMac, iPhone, iPad, Apple Watch, and AirPods. Hidden from the public, Apple has been quietly designing its own custom chips to power its products at their Silicon Valley headquarters. This started in 2010 with the iPhone 4, and Intel chips have recently been replaced in all Mac computers. John Ternus, who heads Apple's hardware engineering, explained that this has been a major shift for the company.Apple's silicon advancement exposes it to different types of risks like relying on a single vendor- Taiwan Semiconductor Manufacturing Company- and competing with tech giants such as Microsoft in the AI market. In November, reporters were allowed to film at one of Apple's chip labs and interview Johny Srouji, leader of Apple silicon, who said they have relatively few engineers in comparison to their portfolio of chips and that their focus is solely on their products. The "scalable architecture" helps with reuse, and they are not selling chips to other companies.
When Srouji joined Apple in 2008, it was to lead a team of around 40 - 50 engineers to design custom chips for the iPhone. A month later, Apple acquired P.A. Semiconductor, a 150-person startup, for $278 million. This gave Apple the chance to "control as much of the stack" as possible, as per the words of Ben Bajarin, CEO and principal analyst at Creative Strategies. Two years later, Apple launched their first custom chip, the A4, for iPhones and iPads.
Srouji's team has now grown to thousands of engineers, working in facilities located in various places such as Silicon Valley, San Diego, Austin, Texas, Israel, Germany, Austria, U.K., and Japan. Apple is mainly developing System on a Chip (SoC), containing a Central Processing Unit (CPU), Graphics Processing Unit (GPU), Neural Processing Unit (NPU) and several other components. The A series chip has advanced from the A4 in 2010 to the A17 Pro, launched in September 2020. The M series was first released in 2020, and currently powers the new Macs and certain iPads.
The S series is a smaller System in Package (SiP). H and W chips are used for AirPods, U chips handles communication between Apple devices and the R1 chip, expected to ship in early 2021, is for the Apple Vision Pro headset. This latest chip is designed to process input from the device's microphones, sensors and cameras, and stream images to the displays within 12 milliseconds.
The H2 chip in the 2nd generation AirPods Pro enables better noise cancellation. The S9 in Apple Watch Series 9 allows for features like double tap. The A11 Bionic in the 2017 iPhones had the first Apple Neural Engine for AI tasks. The A17 Pro, installed in the iPhone 15 Pro and Pro Max in September, provides computational photography and advanced rendering for gaming.
Apple's 3-nanometer chip in their latest A17 Pro allows them to pack more transistors in a given dimension, leading to better power efficiency. This has enabled iPhone-native versions of several games, such as Assassin's Creed Mirage, The Division Resurgence and Resident Evil 4, to be developed. According to Srouji, this chip is the first 3-nanometer one to ship at high volume.
Apple's progress to a 3-nanometer process culminated in the releasing of the M3 chip in October, which has allowed them to achieve a 22-hour battery life and improved graphics performance. Ternus, an employee at Apple for over two decades, noted that the products they used to make were often built around externally purchased technologies, which was limiting. The transition to their own M1 chips in 2020, however, allowed them to revolutionize the possibilities of their Macs and build a MacBook Air with an incredibly slim and lightweight design, no fan, and 18-hour battery life. The newest MacBook Pro, boasting an even more powerful M3 Max chip, is 11 times faster than the fastest Intel-based MacBook Pro that Apple produced just two years ago. Arm architecture, known for its power efficiency, forms the basis for Apple's processors, and other major companies such as Qualcomm, AMD, and NVIDIA are also creating Arm-based PC processors. When they released their first custom chip 13 years ago, Apple was one of the first non-chip-based companies to make it in the industry, and thus inspired others like Amazon, Google, Microsoft, and Tesla to do the same.
Apple is not yet making all of the computing components in its devices itself, such as modems. "The processors have been impressive, but where they have faced difficulties is in the modem side for phones," Rasgon said. "Modems are tricky." Although Apple and Qualcomm ended up settling a two-year legal dispute regarding intellectual property rights in 2019, Apple has yet to create its own cellular modem. This September, Apple and Qualcomm reached a deal for the latter to supply Apple with modems through 2026. Bajarin opined, "Qualcomm still produces the finest modems in the world. Until Apple can match that level of quality, I find it hard to imagine them fully switching." Apple's Srouji, however, was unable to comment on any potential future products but did affirm, "we care about cellular, and we have teams enabling that." Apple is also reported to be looking into producing its own Wi-Fi and Bluetooth chip, and it lately signed a large, multibillion-dollar contract with Broadcom for wireless components. Memory chips, meanwhile, are acquired from third-party vendors like Samsung and Micron. Srouji declared that they prioritize the product over the tech, and so they will buy off the shelf when that means their team can focus on creating the best technology for their vision. Despite how much silicon they end up designing, these components are still manufactured externally in big factories run by companies such as TSMC. TSMC in Taiwan is responsible for-over 90% of the world's most advanced chips, leaving Apple and other companies exposed to possible threats from China. When questioned about an alternative plan, Bajarin replied that there "is not another good option." Apple has promised to become the main consumer of TSMC's upcoming fab in Arizona and has recently announced that they will be the first and largest customer of the recently constructed Amkor factory in Peoria, Arizona. Srouji concluded by informing that Apple wishes to have diversified suppliers from Asia, Europe, and the U.S., and that the TSMC plant in Arizona is a great achievement in that endeavor.
The lack of trained workers in the U.S. to build advanced fabs has impacted TSMC's Arizona-based fab, now projected to be completed in 2025. Apple, for its part, has experienced slower production of new chips, which CEO Srouji attributes to the increased complexity in chip design. He also believes the company has an advantage because they don't need to worry about accommodating a larger customer base. These claims were see in an IP case involving a former Apple chip architect -- who left the company in 2019 to lead a data center chip startup called Nuvia, and was subsequently acquired by Qualcomm -- and a team of engineers he took with him; the lawsuit was ultimately dropped by Apple.
The iPhone maker has recently been investing in AI chip development, though it could be argued that they are lagging behind their competitors. This could be attributed to the lack of software applications to take full advantage of the silicon. Nevertheless, Srouji is confident that updates are coming soon. To learn more, watch the video.
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