Apple’s Silicon Switch Changes Game & Balance 

Will/should others follow?
TSMC vs Intel impact?
Moving Apple’s supply chain further overseas

Apples move to self served silicon was no surprise…..
It has been speculated for years and we have talked about it many times.  It makes more sense for Apple to have silicon, custom designed for their applications and products that fit exactly in their line up. Rather than use an “adapted” X86 architecture that harkens back and pays homage through compatibility to the earliest Intel CPUs, Apple can finally have a “purpose built” CPU that fulfills all its needs.

Not to mention the fact that what really sealed the deal and perhaps accelerated the need was that TSMC had passed Intel in the Moore’s law race.  Not jumping on the TSMC bandwagon would limit Apple to underperformance as compared to what is available.

Apple can gain further differentiation in the marketplace as compared to other laptop makers who really can’t differentiate themselves as they all use the same engine, Intel.

Not the first time Apple switches CPUs…
Apple has changed CPUs several times over the years as the industry has moved forward.  The change from Intel is just another sign that the industry has moved on.

Apple started, way back when, on its Apple II, with a MOS 6502 , 8 bit, CPU which was a much cheaper, better copy of the Motorola 6800 cpu and also way cheaper than Intel’s 8080. The 6502 was used in the Atari 2600 game console and Commodore consumer computer, so cost was a big factor.

The jump to Apple Macintosh also saw a jump to the Motorola 68000 CPU a 16/32 bit design.

Later on down the road, Apple switched again to the PowerPC CPU by IBM which was a RISC (reduced instruction set) CPU versus other popular CISC (Complex Instruction Set) CPUs at the time.

As Apple had its own OS and own infrastructure, X86 compatibility was not as much an issues and perhaps Apple’s “Think Different” mind set helped it go its own way.

Then back in 2005 Apple announced that it had cut a deal with Intel to move to Intel’s X86 line.  We are sure Apple goy a good deal from Intel for the switch and the PowerPC was already on its way out so Apple was jumping ship just at the right time.

Obviously Intel at the time was the CPU powerhouse and had performance that shut out everyone else due to its Moore’s law lead.

Intel’s misstep’s and slowness at entering the mobile CPU market was perhaps the beginning of the end of the relationship as Apple went its own way with ARM based CPUs that morphed into fully custom , purpose built CPUs.

Apple has spent years building up its CPU expertise by acquiring many silicon companies, pouring tons of money into R&D , hiring the best and brightest like Jim Keller, the CPU guru of Apple, AMD, Tesla and Intel.

It obviously makes more sense for Apple to similar CPUs across all its devices for a compatible, seamless product line.

The final handwriting was on the wall as TSMC seemed to pass Intel in terms of transistor density and power consumption characteristics.

Apple is also a huge company as compared to Intel, it has the critical mass, and certainly no longer needs to live within the confines of an Intel dictated architecture that suits Intels needs (and profits).

If anything, we are surprised that this didn’t happen a lot sooner

Collateral Impact, shifts supply chain further to Asia
The move obviously means that TSMC will get a lot more business.  TSMC already makes all of AMDs products that matter, many of Intels products and already makes all of Apples Iphone, Ipad, Iwatch chips.  TSMC is becoming ever more critical as the key, central linchpin to the entire US technology industry.  It is clearly a single point of failure located a short boat ride from China.

This obviously doesn’t jive well with recent problems with Huawei and makes the “token” TSMC fab proposed for Arizona look even more inadequate than before.

If anything the move by Apple further focuses things on the TSMC single point of failure to the US technology industry.

Intel impact
Apple is a large but not too large a customer.  We view the loss as expected and is more of a psychological loss than a financial numerical loss.  Losing the hottest customer in the market is obviously an embarrassment and further proof of the need of Intel to double down to regain its position in Moore’s Law.

It also says that Intel is not competitive for mobile, power sensitive applications but is better off in the data center where power consumption matters less.

Intel has been making most of its money in the data center anyway but it would be better to not lose the diversification.

Should/will others follow suit?
An interesting question now is whether other Laptop/ consumer PC makers will try to follow Apple’s lead and use custom or ARM like processors? The obvious limitation is Microsoft and Windows 10 which powers the rest of the world. Would Microsoft abandon the ancient Wintel duopoly and build a more portable Windows 11? (or whatever number)

We think that Microsoft has to be wondering if they are tied to a sinking ship.  If Apple demonstrates significant power/performance benefits by leaving Intel then it will pick up more market share, which means Microsoft will lose share.

It seems like it would at least be a cheap insurance policy for Microsoft to develop ARM like compatibility to hedge against its potential success.

Having one company, Apple, with application transportability across smart phones, tablets and laptops and wearables all with the same underlying CPU architecture will be huge. Microsoft flopped in smart phones, is lame in tablets and no where in wearables. If I were Microsoft I would be thinking hard about being tied to Intel which will be relegated to the data center only with free Linux as an alternative.

Microsoft already demonstrated PowerPoint at Apple’s roll out and we are sure the full Microsoft suite will move to Apples architecture.

What do PC makers such as Dell , Lenovo, HP and others do?

We think this is a very open ended question that begs answering.  The wrong thing to do is clear….don’t sit around continuing to do the same thing that you have done for the past ten years.

Could Apple become a chip maker?
Apple could very easily make, using TSMC, and sell a version of their CPU architecture to other hardware manufacturers.

Maybe they could sell a version not quite as capable as their own but still better in performance/power than the Intel/AMD alternatives.

They could probably sell it at a pretty good margin and give Intel and AMD a run for their money as the design would likely be better for laptops and portable applications. The bonus would be that Microsoft applications are already compatible with it.

Maybe Google would love it for a Chromebook application and get Microsoft apps to boot. Apple would not cannibalize its own sales as it would still be the only company offering the same architecture from wearables to laptops but it could create more critical mass for more applications to be ported (not that there isn’t enough demand already).

The idea of Apple selling chips is not at all that far fetched if they turn out to be that much better than Intel/AMD.

How many years is “many years to come”?
Tim Cook said that Apple will support X86 devices compatibility for “many years to come”.  In our view that could be as few as two years (the plural of year-many just means more than one….).

When Apple switched from PowerPC their support ended in 3 years after which PowerPC based devices became paperweights.

We think Apple will dump Intel as fast as possible.  Its great for Apple as they get to sell a lot of new laptops at better margins.

For me as a consumer, I will run out and buy a new Apple CPU based laptop as soon as they are available as I would love to have application transportability across my Iphone/Ipad/Iwatch.  I think this clearly expands the addressable market for Apple laptops as many people would switch from windows to get that compatibility.

It will be a seismic change for not just Apple.

The Stocks
There is zero near term impact but just more things to track going forward to watch the transition play out.  Apple has had a lot of time to plan this and won’t screw it up.  It will likely be faster/better than expected.  It is broadly, long term positive for Apple and broadly long term negative for Intel.

It does not impact chip equipment in that it is a zero sum game.  It does obviously benefit TSMC who gains even more leverage and dominance in the market.

We wonder when the administration and legislators will pick up on this acceleration of outsourcing to Asia.

Semiconductor Advisors

Semiconductor Advisors on SemiWiki

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