The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

Summary: Intel is reportedly in the running to make Apple's mobile chips---the A4 and A5---in a foundry deal. Here's why such a move would make sense.

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Intel is reportedly in the running to make Apple's mobile chips---the A4 and A5---in a foundry deal. Here's why such a move would make sense.

As noted by the EE Times, Intel is also pursuing Apple's foundry business. Apple is already planning to work with Taiwan Semiconductor Manufacturing.

The EE Times cited a research note by Piper Jaffray analyst Auguste Gus Richard and on further review the case is pretty strong.

Richard sets up the importance to Intel succinctly:

Intel has no market share in the next wave of computing. Smartphones and tablets are where innovation and excitement are being created. Moreover, we do not believe Intel can overcome Apple and Google's first mover advantage in terms of attracting the attention of application developers. In order to afford to be a process technology leader Intel needs to aggregate volume as Moore gets more expensive. The solution is for Intel to become Apple's foundry, and we believe the company is pursuing this strategy.

So why does this Intel-Apple deal make sense?

Trust and volume. Apple and Intel already work together on the Mac. They also collaborate on technologies like Thunderbolt. Meanwhile, Intel needs volume if it's going to be a mobile chip player and has the heft to give Apple a good price. Apple  and its army of iPhones and iPads bring volume.

Nailing Samsung. It has been clear for months that the Apple-Samsung relationship is tense. That's why Apple is moving to TSMC in the first place. However, Intel may give Apple a better deal and more of a manufacturing advantage in the long run---especially as the chip giant pushes 22-nanometer technology.

Intel needs to master low power. Richard said:

Intel has missed the transition to a post-PC era. There are several reasons for this. First, historically the company's design methodology has been driven by high performance microprocessors and not the low power SOCs required for smartphones, tablets and other mobile devices. In our view, this is a significant issue as Intel needs to develop a rapidly expanding array of IP and learn how to integrate it quickly in a low power envelope. Second, the company continues to support its PC and x86 legacy creating significant inertia. This makes it more difficult to transition to the post-PC era as its products are crippled carrying this legacy.

22-nanometer processes benefit both Intel and Apple. Intel can't be beat on manufacturing, argues Richard. If Intel's 22-nanometer delivers a huge performance gain, Apple benefits by working with the chip giant as a foundry.

Intel and Apple working together on chips is a win-win. Richard writes:

The combination of Apple's growing demand and market share in smart phones and tablets gives Intel a position in these markets and drives the logic volume Intel needs to stay ahead in manufacturing. Intel's manufacturing lead gives Apple an additional competitive advantage in these markets and distances it from Asian competitors that are knocking off its products. A partnership between the two companies would drive dominance in tablets similar to Wintel's dominance in PCs. Furthermore, it would also serve to weaken Samsung who is a significant competitive threat to both companies.

Topics: Networking, Apple, Hardware, Intel, Laptops, Mobility, Processors, Tablets

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26 comments
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  • Margins and skills

    What you are advocating is a transition into fab contracting. I think Intel will find that it cannot earn the kind of gross margins in that business compared to what it is earning making its own microprocessors, where a big part of the margins come from the intellectual property included in its processors.<br><br>The "low power" skills that Intel is lacking arise from the CPU architecture, and not the manufacturing process. It is not obvious to me that becoming a fab contractor will be helpful in this regard at all.

    Edit: If Intel has excess capacity, it is clearly better to produce Apple chips than having its fab(s) sit idle. That does not alter the above rationale however. If demand is down and Intel has overbuilt fabs, its margins will suffer.
    Economister
    • Margins and skills

      @Economister They aren't the same as contract fab since they can do their own masks. This gives them a 6 mo. time advantage over contract fabs, doubling their profits as the price they can typically charge goes down rapidly. Intel can simply be there earlier than other fabs. This is why Intel routinely beats AMD since they started the Tick Tock metronome. They simply make more profit for their chips than AMD can. The same applies in this space as in the x86.

      Regarding low power, they are making significant advances in this area on their own.
      DevGuy_z
      • I know they have the most advanced fabs, ...

        @DevGuy_z

        but not only will that lead be difficult to maintain long term, but as I mentioned in my first post, their traditional margins may still be impossible to maintain.

        Intel's progress in lower power X86 seems entirely irrelevant in the context of this blog, which is about fabbing ARM derivatives for Apple and gaining low power knowledge/experience from that.
        Economister
      • @Economister

        I see what you are saying, but I think Intel is taking low margins now to try to increase volume so that they maintain their lead in the manufacturing process so that when their ATOM processors are ready (which they clearly are not so far) they are ready to compete.
        anono
    • They arent stupid though, they wouldnt expect to see those margins

      this is a high volume play. They also have a great manufacturing tech lead which they've proven they can continuously maintain and extend for several decades now. And they aren't lacking anything in low power tech. They now have the tech to beat any ARM on power and they will soon be delivering it. If intel can also bring their advance power tech to ARM this would give apple a good way to get access to it and beat all the other ARM chips with it.
      Johnny Vegas
    • Intel already has a team in place for doing this...

      @Economister

      And already have a fab allowing third parties to use Intel's top end processes.
      Bruizer
    • Advanced fabs will maintain and extend lead because...

      @Economister The fact that they can do their own masks (which is getting increasingly expensive) is exactly why they will keep and perhaps extend their lead. Almost everyone else out-sources their mask production. And as this is getting more expensive the small-fry can't compete. If anything we are seeing the reverse, i.e. Intel is extending its lead in manufacturing. And I'm guessing that is primarily due to their process being in-house. Where they can set their own priorities and self-interest rather than negotiating price and timeline with a vendor.
      DevGuy_z
  • Will ARM permit Intel to fab its IP?

    nt
    pjcordell
    • Sure why not?

      @pjcordell

      Intel used to be a full licensee but sold their XScale division to Marvell.
      Bruizer
      • The more so it has nothing to do with ARM at this stage at all: Apple has

        @Bruizer: ... prime licence and there is no way for ARM to have whatever restrictions on Apple-designed chips (ARM-cores is just one small part of the SoC, by the way).
        DDERSSS
      • I believe they are still a licensee.

        @Bruizer You are right about the XScale but it seems like a while ago Intel became interested in doing ARM. Maybe I'm thinking Microsoft (also an ARM licensee)
        DevGuy_z
  • No

    That would be Apptel, not Wintel ;-)
    Economister
  • RE: The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

    Forget it.
    james347
    • ZDNet: Down over weekend and STILL didn't fix the damned comment system

      @james347

      Thanks for the well reasoned argument.
      DeusXMachina
  • RE: The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

    Why the insistence in the "Post-PC" mantra? New buzz words for the sake of being cool?

    What is the correct interpretation of the term Personal Computer? From what I see they are more personal today and at most they have just changed in shape, but still personal computers.
    czorrilla
    • RE: The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

      @czorrilla - agreed. Conjuring up "market forces" in a "free market" is all that's going on.
      HypnoToad72
    • pc yes, PC no

      @czorrilla Everyone knows PC=IBM PC Clone. Yes, those things everyone calls smartphones and tablets are personal computers, small-p, small-c. But not PCs. Sure, the acronym was in use long before IBM came along, but they successfully took it as their own.
      Hazydave
    • RE: The case for Intel making Apple's mobile chips: A Wintel of the post-PC era

      @czorrilla its just a dumb fanboy term. From idiots with iPads and other useless tablets that they think are replacing the "PC" as we know it.
      Jimster480
  • I for one think we are still not in a post-pc era.

    It is being re-shaped. But I suspect we will have PCs for years to come.
    DevGuy_z
  • Intel Inside

    Intel has had the good sense to <i>stay</i> inside, as opposed to what Samsung is doing in producing Samsung-branded end user devices.

    At any point in the last 20 years, Intel could have released a line of Intel-branded PCs and put a whole bunch of people out of business. The fact that they didn't is one reason Apple trusts them.
    Robert Hahn