With the introduction of the Kindle Fire, it is now guaranteed that Amazon has the formula down for building the new, high volume mobile platform based on sub $9 processors. In measured fashion, Amazon has moved down Moore’s Law curve from the initial 90nm Freescale processor to what is reported to be TI’s OMAP 4 in order to add the internet, music and movies to its previously single function e-book environment. Some view it as a competitor to Apple, however the near term impact is on brick and mortar competitors (i.e. Barnes and Noble, Walmart etc) and to the mostly snail mail based movie house Netflix.
Moore’s Law can be brutal to semiconductor companies. For a moment there appears to be a hole to drive a product into and then a few weeks later that hole is gone. Product planning is a high wire act of forecasting features, die size, prices and costs several years into the future when the chip is in full production. Agony seems to take over between the initial chip tape-out and full qualification, which usually works out to be a full year in time. Meanwhile the competition marches on with lower prices.
This is why Intel is still the king. It imposes a trickle down model that starts with $1000 processors that glide down to just $60 in less than two years time. They came upon this model when they transitioned out of the 286 and into a sole monopoly of 386 processors. AMD was left holding the bag with single digit priced 286s. When AMD re-entered the market with their own 386s they copied the Intel pricing scheme that also exited at $60.
Over the years the difference in terms of features and performance between the $1000 and $60 processor has narrowed. Part of it was a function of the Processor and DRAM performance gap. But there always remained an open field to be explored of sub $60 processors. Microsoft O/S updates with their ever-greater requirement of memory seemed to snatch away any hope of a market forming. It remained a no man’s land.
Apple was the first to break the code with their own ARM based processors for the iPhone and iPAD. They settled on a $20-$25 cost model to create ecosystems that had plenty of performance and good enough graphics married to an O/S that is light on its feet. And now the race is on for the merchant chip business to break in. Even Intel is scrambling to come up with something to use as fodder to protect the PC dynasty.
Amazon is likely to inch its way upward in terms of features but be careful not to direct a Pickett’s Charge directly into Apple’s iPAD. They don’t need to in order to be successful. There is enough business to tackle with <$199 Kindles.
Likewise Apple is going to inch its way into a greater piece of the PC industry with its iPAD. The wall of separation between the iPAD and the PC is Microsoft Office and a tad more performance in its processor. Expect Apple to have two distinct processors to reach higher in the stack and go slightly lower in price – eventually to $399. All of this means that nVidia, Qualcomm and the rest have a big job ahead of them.
The latest iPhone 4S introduction was a disappointment to some because it didn’t have the “5” moniker. But from the standpoint of growing the market, Apple has set itself up well. At the high end they added a 64GB NAND flash storage version that will be desired by photo enthusiasts who want to take advantage of the new 8MP camera. Notice that Apple is increasing its margins at the existing $199 and $299 price points while adding a new higher end $399 model. To top it off, they now have a 3GS model that costs $0 to get into. What is the competitors rejoinder? Will Samsung, HTC and Google now have to offer consumers $100 to take their product off the rack? I believe the answer will be yes.
Think of how this flows through to nVidia and Qualcomm. If their customers must subsidize users to buy their phones and tablets, then all the components will come under price pressure, if they aren’t already. Remember there are now three ecosystems. The PC driven by Intel, the tablet driven by Apple and the low end Kindle media device driven by the two year old ARM mobile processor that sells for <$9 and today that is TI's OMAP 4. Good luck making money in the new mobile processor market.