Apple Becomes a Chipmaker to One-Up Smartphone Foes

Apple's iPhone X and Apple Watch 3 rely on new, company-designed chips.
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In a video introducing the iPhone X, Apple design chief Jony Ive speaks in his usual sonorous tones about features like polished stainless steel and new formulations of glass. Twice, he also calls out a feature of the $999 device that its owners will never see: the A11 “bionic” processor powering the phone.

The new chip’s prominence reflects Apple’s deepening investment in chip design. Last week the company also revealed it had built new custom chips or chip components for artificial intelligence, graphics, and video. And Apple highlighted two new chips in its refreshed smartwatch, suggesting they helped the company add a cellular connection to the device without hurting its battery life.

Computer and gadget makers have traditionally outsourced the work of designing and making the processors at the heart of their products. In the PC era, Apple followed this path as well: The processors in its Macintosh computers were initially built by Motorola, and later by Intel. In smartphones, however, industry watchers say Apple’s strategy of designing chips itself has given it a big advantage—and arguably made its mobile chips the best on the planet.

“I don’t think that’s in dispute,” says Avi Greengart, who tracks mobile devices and platforms at analyst firm GlobalData. Linley Gwennap, founder of semiconductor analysts the Linley Group, agrees. “From what we’ve heard about the A11, I would expect Apple to be pushing the technology beyond what’s already industry-leading in the iPhone 7,” he says.

Apple discloses limited technical information about its chips, but said that by one measure the A11 chip inside the iPhone 8 and iPhone X is 25 percent faster than its predecessor in the iPhone 7. The company declined to make anyone available to discuss the A11 chip.

Apple argues that designing chips in-house allows them to be more tightly integrated with its other hardware and software. Gwennap says that can help engineers balance the tradeoffs inherent in packing a complex computer into the palm of your hand. The new 3-D facial-recognition camera in the iPhone X, for example, consumes additional power and requires speedy data processing. Apple’s new “neural engine” component should help address both issues.

Apple’s rivals love to take inspiration from the iPhone, but they can’t easily copy its chip strategy.

Samsung, the world’s largest phone maker, designs mobile processors as well as phones, but the Korean company’s conglomerate structure keeps its phone and chip-making units somewhat separate. Samsung’s Exynos processors must be designed to serve other customers, too. In addition, the company doesn’t control Google’s Android operating system that powers its phones, so it can’t tightly integrate chip designs and software.

Similar limitations apply to Qualcomm, which according to Strategy Analytics supplies more smartphone processors than any other company. It has to serve customers with diverse handset designs, and can’t target even its top-of-the-line chips at only the most expensive devices. Customers for Qualcomm’s flagship Snapdragon 835 processor include Chinese phone makers Xiaomi, OnePlus, and ZTE, which typically sell phones for significantly less than an iPhone.

“It is somewhat unfair to compare Apple’s chip designs to those of Qualcomm, Intel, or AMD,” Ben Bajarin of Creative Strategies wrote in a note after Apple’s event last week. Rivals “don’t have the luxury to focus a design on just one device or platform.”

Designing chips is a high-stakes, expensive business, because errors in a chip’s design can’t easily be fixed. Apple contracts with chip fab owners such as TSMC to get its designs manufactured. To gain expertise in designing chips, Apple acquired PA Semi in 2008 for a reported $278 million, and Intrinsity in 2010 for a reported $121 million. But Apple’s huge scale and profitability---it sold 170 million iPhones in the first nine months of its fiscal year---help it absorb the costs.

To compare the performance of chips, tech types rely on a concept called benchmarking, which measures how fast a chip performs a specified set of mathematical operations, even though it may not reflect how a phone performs in everyday use. In such tests, Apple’s chips tend to outperform competitors. When the Linley Group teamed up with hardware specialists Chipworks to take apart the iPhone 7’s A10 chip and compare it with rivals last year, they declared it the clear winner. “The new iPhone 7 delivers better performance than any other flagship smartphone and outscores even some low-end PCs,” their report concluded. Since then, newer models of some rival chips have outperformed the A10 in some tests.

Early data from a popular app called GeekBench suggests Apple’s A11 chip raises the bar again. Soon after Apple’s launch event last week, users posted scores claiming to be from new iPhone models that outstrip all other smartphones.

While Apple’s adventures in chip design prop up the iPhone today, they could also be key to the company’s efforts to diversify its revenue. Greengart says the Apple Watch demonstrates how the company’s chip strategy helps it improve products beyond the iPhone.

Last week, Apple announced a new version of its watch that features cellular calling, and a 70 percent faster processor, but is almost identical in size to its predecessor and has the same battery life. Apple boasts that the watch has a custom wireless chip that makes the device’s Wi-Fi connection 85 percent faster and 50 percent more power efficient than the prior model. “Nobody else has been able to create a cellular smart watch with that form factor and reasonable battery life,” Greengart says.

Lightweight augmented reality spectacles—a concept mentioned in multiple Apple patent filings—would also require new space- and energy-saving ideas. Microsoft said in July that it had created a custom chip for its still-in-development HoloLens augmented-reality system. Tim Cook has called augmented reality “a big idea like the smartphone.” Any future AR device from Apple will likely rely on its own chip design to think different.

Correction: Avi Greengart is an analyst for GlobalData. An earlier version of this story incorrectly identified him as an analyst for Current Analysis, which was acquired by GlobalData earlier this year.