Apple: Is it about chips now?

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Happy Hump Day and welcome to the 61st edition of Weekly Olio - your trusty source for giggles, wisdom, and a dash of intrigue courtesy of our tantalizing thought piece (yes, buckle up for Publisher's Parmesan). 🧀 

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The Quote󠀢 💭

The Tweet 🐦

This interesting thread covers the semiconductor industry and its segmentation, the different kinds of chips, and the fabrication process.

The Infographic 💹

What are the risks facing the global economy in 2024? ⚠️ Hit reply to this email, and let us know.

The Short Read 📝

Age of Invention: How to Steal Technology - by Anton Howes

Anton Howes is a historian in residence at the Royal Society for the Encouragement of Arts, Manufactures and Commerce.

The above article is about the history of technology transfer and espionage, from ancient times to the present day. The author argues that stealing technology is not easy, as it requires not only access to the physical artefacts but also the tacit knowledge and skills of the inventors and users.

The Long Read 📜

Investing Adventures in Bhutan - by Derek Urben

Derek Urben is an investor at Left Lane Capital, a venture capital firm that focuses on high-growth internet and consumer technology businesses. He was previously the CFO and Director of Business Development at Coinigy, a cryptocurrency trading platform. He is also an active speaker and writer on topics related to finance, economics, and blockchain technology.

The above article is a personal account of the author's visit to Bhutan, a country that measures its progress by Gross National Happiness. It discusses the potential and challenges of investing in Bhutan's key sectors, such as hydropower, tourism, and organic farming. It also reflects on how Bhutan's culture and values can inspire investors to pursue more meaningful and sustainable outcomes.

🎉 Drum roll, please! 🥁 Let's give a hearty round of applause to our guest post collaborator, Akshat Dhamija! 📜🎩

Akshat is currently a Senior Manager at Tata Neu, where he works on the Business Finance priorities of the organization. Previously, he has worked with Flipkart, and Airtel.

Publisher’s Parmesan 🧀

Apple: Is it about chips now?

Apple has a long history of integrating hardware and software closely, which has strategic utility as it allows them to control more aspects of the final product and improve the user experience. It also has practical payoffs such as generating high margins on Apple-branded peripherals like chargers.

By adding chips to their products, Apple gains greater control over the product roadmap and can design around hardware constraints, giving them a competitive advantage. Additionally, Apple can better predict demand for their products, which has always been a challenge in the chip industry. Apple's chips business has a significant captive customer in the form of Apple itself, which is very good at predicting and influencing demand. 

Have you ever wondered how Apple's success story came to be? It's no secret that their consumer devices have taken the world by storm, from the iMac to the iPhone and iPad, and most recently, the Apple Watch and AirPods. But did you know that the secret to their success lies in a room filled with buzzing machines and a handful of engineers in lab coats?

Yes, that's right! Apple's Silicon Valley headquarters houses a team of brilliant minds who design the custom chips that power their most popular products. It all started in 2010 when they introduced their semiconductors with the iPhone 4. And now, as of this year, all new Mac computers are powered by Apple's silicon, which marks the end of the company's long dependence on Intel.

This shift to in-house development of various technologies, particularly silicon, is one of the most significant changes in the company's products over the last two decades. But with every major change comes a new set of risks. Apple's recent transition to advanced silicon has brought about challenges, especially since its most advanced silicon is mainly manufactured by a single vendor, Taiwan Semiconductor Manufacturing Company.

But fear not, Apple has a large team of engineers whose streamlined and efficient chips optimize their products' design. Unlike other chip manufacturers, Apple does not produce silicon for external companies. This allows them to focus solely on their products and reuse components across various products using their scalable architecture.

So, the next time you're holding an Apple device, remember that it's powered by some of the most advanced chips in the world, designed right in the heart of Silicon Valley.

Powering iPhones since 2010

In 2008, Apple hired one of the most talented engineers in the field of chip design, Johny Srouji, to lead a team of engineers to design custom chips for the iPhone. Apple then acquired a startup called P.A. Semiconductor for $278 million, which only added more talent to the team. Fast forward two years and Apple launched its first custom chip, the A4, which was used in the iPhone 4 and the original iPad.

But that's not all, Apple is taking chip design to the next level with its scalable unified memory architecture that can be used across various products. This revolutionary technology was first introduced in the iPhone and then extended to the iPad, watch, and finally to the Mac.

The real magic of Apple's chip design lies in the system-on-a-chip (SoC) technology. This chip combines various components such as the central processing unit (CPU), graphics processing unit (GPU), and a neural processing unit (NPU) that runs the neural engine. This SoC technology has allowed Apple to create the most powerful and efficient chips that power your favourite Apple devices.

Replacing Intel in Macs

In 2020, Apple made a groundbreaking change in the semiconductor industry. They ditched Intel's PC processors and replaced them with their own M1 chip, which was used in the MacBook Air and other Mac models. This move allowed Apple to create a MacBook Air that is thinner, lighter, fanless, has a battery life of up to 18 hours, and outperforms the MacBook Pro!

Some experts even argue that the newest MacBook Pro with Apple's most advanced chip, the M3 Max, is 11 times faster than the fastest Intel MacBook Pro that they were producing just two years ago. That's a huge leap forward in processing power!

But what's even more exciting is the impact that Apple's move has had on the industry as a whole. Intel processors have been the traditional choice for PC manufacturers, with a lot of software developed for it. However, Apple's M1 chip is based on the Arm architecture, which is known for its low power consumption. This means that laptop batteries can last much longer, making it a game-changer for the industry.

Apple's M1 processor has paved the way for other big names like Qualcomm, AMD, and Nvidia to develop Arm-based PC processors. And if that wasn't enough, Apple recently extended its deal with Arm through at least 2040.

It's amazing to think that just 13 years ago, it was considered unusual for a non-chip company like Apple to venture into the cost-prohibitive semiconductor market. But since then, other tech giants like Amazon, Google, Microsoft, and Tesla have also experimented with custom chips. It's an exciting time to be in the tech industry!

Modems are hard

While Apple may be renowned for its innovation and cutting-edge technology, it relies on external suppliers for some of its crucial components.

Although Apple has successfully developed its processors for its devices, it still needs to source modems, Wi-Fi, Bluetooth, and memory from external providers. Currently, Qualcomm supplies Apple's modems, while Broadcom is in charge of wireless components.

However, Apple is on a mission to become more independent and self-sufficient. In 2019, the company purchased Intel's 5G modem business for a whopping $1 billion, signalling its intention to develop its cellular modem in the future. Moreover, Apple is reportedly working on its own Wi-Fi and Bluetooth chips, which could further reduce its reliance on external suppliers.

But wait, there's more! Apple is also committed to bringing some of its manufacturing to the United States. The company has agreed to be the largest customer at TSMC's upcoming fab in Arizona, and it will also be the first and biggest customer of the new $2 billion Amkor manufacturing and packaging facility being built in Peoria, Arizona.

Despite these efforts, Apple and the rest of the industry remain vulnerable to the threat of invasion from China, as over 90% of the world's advanced chips are made by TSMC in Taiwan. In fact, experts believe that there is currently no good alternative to TSMC, and the industry is heavily reliant on the company.

It's clear that Apple is focused on building the best products possible, and they're willing to buy off-the-shelf components if it means they can focus on what matters most. However, the company's commitment to becoming more self-sufficient is admirable and could lead to even more exciting developments in the future!

Finding talent

Can you imagine that there is a shortage of skilled chip labour in the U.S.? But that's true!

The lack of advanced fabs built in the country for several decades could be the reason behind this shortage. Unfortunately, TSMC, a Taiwanese semiconductor foundry, has reported that its Arizona fab is now delayed until 2025 due to a shortage of skilled workers.

Apple, too, is experiencing a slowdown in the release of new chips, which could be related to the scarcity of talent. With the increasing complexity involved in developing new chip generations, achieving greater power efficiency while also packing more power into smaller chips has become a challenging task. However, Apple believes it has an advantage in this regard because they don't have to worry about targeting a larger customer base or sending chips to other companies.

But wait, there's more! Apple is facing significant challenges in its main business due to the recent slump in smartphone sales. On the other hand, there is a marked increase in the demand for AI workloads, which has resulted in a surge of orders for high-performance chips, particularly GPUs made by companies like Nvidia.

Putting everything aside, Apple could have done better from the beginning. However, the future brings endless opportunities for Apple and everyone is excited to see what lies ahead for them! 

Want to understand more about Apple’s relationship with chips? Here you go!

Olio Jobs 💼

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• Awin | Berlin - Associate Product Manager

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