Apple Bets Its Chips on In-House Microprocessor Design

The microprocessors that will go into future Apple (Nasdaq: AAPL) products -- especially the handheld variety -- will need to be smaller, cheaper and more powerful while using less power. Those chips will be the result of Apple designer brainpower, not third-party suppliers, according to a recent report.

Steve Jobs' company is in the middle of a hiring spree, The Wall Street Journal reported Thursday, recently posting openings for microprocessor designers and putting new high-level hires from Advanced Micro Devices (NYSE: AMD) to work on next-generation chips.

The Journal calls it a big shift in strategy that began a year ago, when Apple bought low-power processor design company PA Semi.

The company will likely have to outsource the actual manufacturing of processors to a foundry, but bringing chip design within its Cupertino campus not only might prove more efficient, but also could help protect vital intellectual property. Yet it will also mean that Apple will have to spend enough money to retain those qualified chip designers and to maintain a product pipeline that can squeeze enough profit out of the new chips.

The Need for SOCs

At the core of Apple's processor issue is the need to put more features and computing power onto a single chip. Standard desktops and notebooks have enough elbow room on their motherboards for all the processors that work with a central processing unit -- graphics, memory, etc. However, an iPhone or iPod touch has limited space available; hence the need for more robust systems-on-a-chip (SOCs) that contain all those elements on a single processor. However SOCs are known to suck up battery juice.

"The more specific your SOC is to the product design, the more optimized it is, and the better fit you have" Tom Halfhill, senior analyst with In-Stat's Microprocessor Report, told MacNewsWorld. "If you take all the features you want in a portable product -- smartphone, laptop, netbook, whatever -- and you integrate more of those functions in one chip, you can now make a very optimized product that burns less power, can be smaller [and] less costly to make -- and you can improve your profit margins."

Power management will be key, said 451 Group Research Director Chris Hazelton, since some of Apple's smartphone competitors boast longer battery life between recharges.

"The iPhone is such a great device that you have people using it for longer periods of time during the day than they would use any other smartphones," Hazelton told MacNewsWorld. "You have video, high-resolution touchscreens, excellent browsing capabilities. You have to have battery management."

Hazelton is expecting near-term iPhone variations that would include a hard keyboard to appease what he calls a "huge pool of users" unwilling to adapt to touchscreens. "What that will do is drive people to email and message more on the iPhone than they currently do. I imagine that [better SOCs] can provide some space-saving. They're not going to reduce the size of the screen -- it's the differentiator of the iPhone. What is lacking is a keyboard."

The Chip Design Process Calendar

iPhone variations are likely on the way, agreed Halfhill, as well as a netbook -- "it's just too popular a category to ignore" -- but that could just be the start of an incredibly demanding SOC product calendar.

"To design an SOC and get it out the door, you're talking a minimum of 12 to 18 months. That's assuming everything goes perfectly. There's a long lag between hiring [designers] and getting a chip out the door," he said. "It also means in order to have a stream of products that are always improving, you have to have multiple SOC products in the pipeline -- almost a new SOC coming out every year. To do that, you need multiple projects on a staggered schedule, and you have to hire enough designers and engineers."

SOCs are expensive to develop, Halfhill said, and that will require plenty of refreshed iPhones, iPods, laptops and (potentially) netbooks to ensure that Apple gets its money's worth out of each new processor. Also, it's unknown whether Apple has plans to adopt ARM architecture for its new in-house designed SOCs -- the iPhone currently runs this processor architecture, which is known for better power management -- or if it will try to adopt the x86 architecture that is now found in Apple desktops and notebooks.