Apple's efforts to boost in-house chip development amplifies risks to suppliers

Posted:
in iPhone
As Apple continues its market expansion, it appears to be on the cusp of developing its own microprocessors as solutions to cost management and supplier constraints -- and the subsequent fabricator abandonment that occurs as a result has profound repercussions those left behind.




Bloomberg notes that an in an industry prone to consolidation, Apple is more and more turning to in-house development of key components. As a result, more suppliers like Imagination Technologies will be cut, benefitting Apple but slashing millions of dollars off of those companies' earnings.

Apple has recently had issues sourcing supplies from multiple vendors to keep costs down. Market consolidation, including SanDisk, Sharp, RF Micro, Elpida Memory, and Fairchild Semiconductor all been acquired and consolidated in the last five years. Correspondingly, the number of available suppliers for any given component that Apple desires is drying up, perhaps hastening Apple's desire to move development in-house.

Imagination Technologies stands as perhaps the biggest example of the risks of dealing with Apple. On April 3, Imagination itself told shareholders that Apple would cease using its technologies before two years elapsed.

Apple's decision caused Imagination Technologies' share price to fall dramatically on the London stock exchange. At the end of trading on March 31, Imagination shares were valued at 268.75p, but dropped down to just 103.0p shortly after the markets closed the Monday morning after the announcement.

Weeks after the announcement there has been no meaningful recovery of the share price. The company has also attempted to discuss potential alternative commercial arrangements with Apple for the current license and royalty agreement, but it is unknown if this will generate any traction -- and recent reports suggest that Apple will need less and less from the company over the next two years.

Possible future victims of Apple's abandonment

According to sources cited by the report, Dialog Semiconductor and Synaptics are both at the mercy of both Apple's demands and needs, and in danger of being dropped.

Dialog Semiconductor produces power management chips for Apple. Apple has recently set up power management research and development facilities of its own in California.

Synaptics supplies components for the iPhone touch screen. While there is no particular facility dedicated to the task currently known, analysts are seeing a "significant number" of engineers from the company now working at Apple.

There is an upside to Apple's efforts -- but it will likely only be felt by the iPhone manufacturer. Timothy Arcuri from Cowen & Co. believes that semiconductors account for about 30% of an iPhone's build cost, with cuts associated from Apple-built components improving Apple's bottom line.

Additionally, Apple would have a benefit of secrecy in developing its own products. Prior to the iPhone 7 launch, little was known about the A10 processor in the device, which would ultimately be called the A10 Fusion. Contrary to that, the device's design and external similarity to the iPhone 6 family was disclosed by the rumor mill months before the device actually shipped.

Youve seen what theyve done to Imagination and Dialog Semi and all of these people who supply to Apple, said Canaccord Genuity analyst Mike Walkley. "Its kind of what Nokia did back in the day when they were king of the world."

Comments

  • Reply 1 of 16
    melgrossmelgross Posts: 29,093member
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    watto_cobra
  • Reply 2 of 16
    Apple isn't abandoning fabricators. Apple is designing their own chips, but the company itself is fabless. They'll continue to need foundries for the foreseeable future.
    anton zuykovdamn_its_hotwatto_cobra
  • Reply 3 of 16
    In general competititive market consists also from competition losers and victims. Nothing new there so let's not run into some status quo agenda.
    watto_cobra
  • Reply 4 of 16
    tmaytmay Posts: 1,720member
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    watto_cobra
  • Reply 5 of 16
    IanSIanS Posts: 10member
    Imagination Technologies worked hard to diversify their portfolio to reduce their reliance on Apple. What they did not do is concentrate on the kind of high end products that Apple would need going forward. There are times when you should work hard to make your largest client happy.
    damn_its_hotwatto_cobra
  • Reply 6 of 16
    melgrossmelgross Posts: 29,093member
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    As far as Apple goes, Qualcomm could be out of the picture, this year, or at the latest, next year. Now that Intel has acquired another cell radio manufacturer with the necessary patents, they will be making radios with both GSM and CDMA. LTE isn't really either. So once the old standards are gone, it shouldn't matter anymore except for the different frequencies used around the world.
    tmaybrian greendamn_its_hot
  • Reply 7 of 16
    wizard69wizard69 Posts: 11,948member
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    It is the combination of on die and control that Apple needs.   I often allude to the idea that Silicon is what the printed circuit board was to manufactures in the 1980's and 1990's.  This is where your engineers now put thier talent to work offering value.  Apple most certainly wants to put more "stuff" on the silicon for the space advantage.  

    What people seem to miss is that this offers other big advantages that Apple can leverage.   One big one is making specialized compute units more generalized.  Even today there are many processors in an iPhone outside of the users Applications processor.   If these are generalized to hanfle many functions even more space and power is saved.     For example DSP processing for voice and cell handled by the same block of logic.    Camera / image processing handled by the GPU block being another example.    Apple needs control of these blocks to be able to leverage them across many functions.  Inthe end Apples A series chips get smaller while offering better performance.  

    If people dont think there id potential here they need to look at photos of the current A series dies.  The main GPU and CPU sections are a minor  part of the whole die.  There is huge opportunity here to do more on the GPUs or generalized DSP clusters.  
    tmaybrian greenwatto_cobra
  • Reply 8 of 16
    gatorguygatorguy Posts: 15,938member
    melgross said:
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    As far as Apple goes, Qualcomm could be out of the picture, this year, or at the latest, next year. Now that Intel has acquired another cell radio manufacturer with the necessary patents, they will be making radios with both GSM and CDMA. LTE isn't really either. So once the old standards are gone, it shouldn't matter anymore except for the different frequencies used around the world.
    Where are you and TMay getting the idea that Qualcomm is out of the picture once CDMA and/or "the old standards" are no longer used? One of the biggest IP holders in the next gen 5G is none other than Qualcomm. While they don't have the standards power they once wielded with 3G/4G, it will be some time before the industry at large no longer has to negotiate licenses with them.

    For a far better explanation of the current IP landscape and communications standards than I could provide:
    http://www.ipwatchdog.com/2016/03/31/5g-mobile-networks-next-big-battleground/id=67632/
    edited April 19 spacerays
  • Reply 9 of 16
    thttht Posts: 2,540member
    gatorguy said:
    melgross said:
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    As far as Apple goes, Qualcomm could be out of the picture, this year, or at the latest, next year. Now that Intel has acquired another cell radio manufacturer with the necessary patents, they will be making radios with both GSM and CDMA. LTE isn't really either. So once the old standards are gone, it shouldn't matter anymore except for the different frequencies used around the world.
    Where are you and TMay getting the idea that Qualcomm is out of the picture once CDMA and/or "the old standards" are no longer used? One of the biggest IP holders in the next gen 5G is none other than Qualcomm. While they don't have the standards power they once wielded with 3G/4G, it will be some time before the industry at large no longer has to negotiate licenses with them.

    For a far better explanation of the current IP landscape and communications standards than I could provide:
    http://www.ipwatchdog.com/2016/03/31/5g-mobile-networks-next-big-battleground/id=67632/
    They mean once Intel delivers GSM+CDMA cellular modem, Apple won't be buying cellular modems from QCOM anymore. They'd get all their modems from Intel. What was old is new again if so. Apple would be back to using Infineon for all their cellular modems. ;)

    I'd go one further. Apple really really wants to integrate cellular modems into their SoCs. If they win with their lawsuits against QCOM, I'd imagine cellular modems will be appearing Apple SoCs pretty quick.
    watto_cobra
  • Reply 10 of 16
    blastdoorblastdoor Posts: 1,612member
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    I've been wondering if the first Apple SOC to integrate an LTE modem might be in the Apple Watch, perhaps fabbed by Intel.
    watto_cobra
  • Reply 11 of 16
    qwweraqwwera Posts: 194member
    Sadly this type of thing happens in almost every industry. I've personally seen it happen a few times. Everything is fine and dandy. A symbiosis with complimenting resources changes as one grows bigger and more independent and doesn't need it's partner anymore. And that's not including your wife.
  • Reply 12 of 16
    adm1adm1 Posts: 328member
    Seen this happen personally to my company, we supplied products solely to a couple of big players in the oil industry and reaped the profits when it was good. Since the oil price crashed, we've had to reduce our workforce to a skeleton crew and now its a mad rush to diversify and gain new clients elsewhere. 

    Apple giveth and Apple taketh away  ;)
  • Reply 13 of 16
    tmaytmay Posts: 1,720member
    gatorguy said:
    melgross said:
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    As far as Apple goes, Qualcomm could be out of the picture, this year, or at the latest, next year. Now that Intel has acquired another cell radio manufacturer with the necessary patents, they will be making radios with both GSM and CDMA. LTE isn't really either. So once the old standards are gone, it shouldn't matter anymore except for the different frequencies used around the world.
    Where are you and TMay getting the idea that Qualcomm is out of the picture once CDMA and/or "the old standards" are no longer used? One of the biggest IP holders in the next gen 5G is none other than Qualcomm. While they don't have the standards power they once wielded with 3G/4G, it will be some time before the industry at large no longer has to negotiate licenses with them.

    For a far better explanation of the current IP landscape and communications standards than I could provide:
    http://www.ipwatchdog.com/2016/03/31/5g-mobile-networks-next-big-battleground/id=67632/
    Intel has a modem, XMM7650, recently announced that supports CDMA. Apple may end up using this in a future iPhone; maybe as soon as this fall. It's Gbit performance, so it's good enough to compete against Qualcomm modems.

    The CDMA market in the U.S. will be small in four to five years, so the leverage that Qualcomm has in that large market will end; Samsung will be shipping Exynos in lieu of Snapdragon for its SOC's in regions without CDMA.  

    Many of the Chinese OEM's, among others, will have more options for their modems and their SOC's, though China will remain the largest market for CDMA for a long time.

    I'm not seeing how Qualcomm's revenue growth is going to hold up if they lose SOC and modem sales against competition, and licensing fees are decreasing.

    Edit: Qualcomm is attempting to diversify, into drones, automobiles, servers and add-ins like touch ID, but these are still nascent markets.
    edited April 20
  • Reply 14 of 16
    ksecksec Posts: 1,258member
    Where do you get the idea once once you have Intel, Qualcomm is out of the picture? 

    You will still have to paid for 4G IP to Qualcomm! Mediatek, LG, Samsung, Huawei, all have SoC without using Intel or Qualcomm. But you will still need IP. 
  • Reply 15 of 16
    carnegiecarnegie Posts: 138member
    ksec said:
    Where do you get the idea once once you have Intel, Qualcomm is out of the picture? 

    You will still have to paid for 4G IP to Qualcomm! Mediatek, LG, Samsung, Huawei, all have SoC without using Intel or Qualcomm. But you will still need IP. 
    Yes, Qualcomm will be important when it comes to cellular IP (and, e.g., licensing royalties) for quite some time. It continues to be a significant player in developing standards.

    The question is, how big a player will it be going forward when it comes to producing and selling modems ? It will likely continue to be an important player for some number of years. But 5 or 10 years out? Who knows?
  • Reply 16 of 16
    melgrossmelgross Posts: 29,093member
    gatorguy said:
    melgross said:
    tmay said:
    melgross said:
    It's actually amazing that Apple has been able to maintain pretty much 100% secrecy involving its chip IP over these years.

    i believe that one thing Apple wants to do is more chip integration. So two problems with Qualcomm. The first is the license fight, and two is that Qualcomm won't allow Apple to license its chip designs for integration into Apple's SoC. That costs power, that Apple wants back, as well as space on the circuit board, which Apple can either use for other things, or that they can make a bit smaller.

    the other suppliers that are mentioned in this article likely also suffer from the same problems, but not so much in improper licensing. But performance can be enhanced, I suppose Apple thinks, as well as better power management and costs. Neither are ever bad things.

    of course, Apple can also better direct development.
    Actually, Qualcomm could be out of the picture entirely once CDMA is abandoned in the U.S. and a few other areas for GSM/LTE. That would benefit Intel, for awhile anyway, until Apple acquired enough IP and talent to create their own modems. But you are correct, Apple wants everything on die that they can, rather than the component level.
    As far as Apple goes, Qualcomm could be out of the picture, this year, or at the latest, next year. Now that Intel has acquired another cell radio manufacturer with the necessary patents, they will be making radios with both GSM and CDMA. LTE isn't really either. So once the old standards are gone, it shouldn't matter anymore except for the different frequencies used around the world.
    Where are you and TMay getting the idea that Qualcomm is out of the picture once CDMA and/or "the old standards" are no longer used? One of the biggest IP holders in the next gen 5G is none other than Qualcomm. While they don't have the standards power they once wielded with 3G/4G, it will be some time before the industry at large no longer has to negotiate licenses with them.

    For a far better explanation of the current IP landscape and communications standards than I could provide:
    http://www.ipwatchdog.com/2016/03/31/5g-mobile-networks-next-big-battleground/id=67632/
    There are a number of cell radio manufacturers around the world. They all have their own patents. I'm sure that there is some cross licensing, but it cancels out, for the most part. Intel now owns two companies with patents in both the GSM space, which they had last year, and now the CDMA space. If new radios from Intel meet Apple's standards, they why buy more Qualcomm radios? Therefor, Qualcomm is gone for Apple. Will it happen this year? I don't know. But by next year, sure it could happen. It all depends on when Intel gets into gear with production of its own new designs. Why are you surprised at that?

    even if Intel needs to license some patents, it won't be much. Qualcomm will have lost almost all of their business with Apple. A small amount of licensing for Intel means little. Assuming it's even required. But you need to remember that many of the patents Apple was being charged for weren't FRAND, they were exclusive. That means that they aren't required for the purpose of making the radio, and aren't needed. And those that might have been FRAND are, by definition, very cheap to license.

    qualcomm knows this. They will be forced to drop licensing terms to every customer they have from rulings already rendered from several countries. If the investigation from the EU, and the one here have the same findings, then Qualcomm is cooked well and good. If Apple wins their case, then other companies will be encouraged to sue as well.
    edited April 22
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