Can Apple Become the Intel of Mobile Chips?

I know what you're thinking. You're scratching your head and wondering, "What is this Fool talking about? Intel (Nasdaq: INTC  ) is the 'Intel of mobile chips,' isn't it?" Especially since Apple (Nasdaq: AAPL  ) gets its Mac-bound processors from Intel, after all.

Let's back up a step.

Survey says
According to In-Stat, Apple is potentially set to become the largest mobile processor company in the world by year's end. It's worth noting that In-Stat is including laptops in its definition of "mobile products," which is how Intel is able to claim top-dog status. Desktops and servers are excluded, because, let's face it, who grabs their data server along with their smartphone and keys on their way out the door?

The study includes portable media players such as the iPod Touch (which Apple doesn't break out specifically from its broader iPod category), along with handheld gaming devices from the likes of Nintendo and Sony.

Most people, including myself, tend to classify just smartphones and tablets as mobile devices, most of which carry ARM Holdings (Nasdaq: ARMH  ) -based designs, but that's a debate for another day.

In-Stat estimates that Apple shipped roughly 176 million processors within its iDevices, which represented a 13.5% market share, while Intel shipped 181 mobile chips for a 13.9% slice. Apple reported sales of about 93.1 million iPhones and 40.5 million iPads in calendar 2011, which accounts for 133.6 million of its ARM-based chips, before counting iPods.

With those definitions in mind, the researcher thinks Apple has a decent shot of dethroning Intel as the top mobile processor maker in 2012.

Intel Inside?
In-Stat analyst Jim McGregor attributes continued iPhone and iPad strength as the key to Apple's possibly taking the lead. He believes that Apple's role as a processor company will be even more emphasized as mobile devices continue to take off, especially as Intel has yet to make a dent in smartphones and tablets, although the chip giant is making a big push this year with its Medfield Atom chip.

He even touches on the possibility that Apple may one day switch its Macs over to its proprietary A-family of chips, which would be a big loss for Intel since Macs have outpaced the broader PC market for 23 consecutive quarters. Rumors of ARM-based MacBooks have circulated for years, and Apple has probably tested such prototypes, but Intel's spot in Macs is probably safe for the time being.

Intel chips lead in performance, although ARM chips still have the advantage with power efficiency, which is a dynamic that ARM CEO Warren East doesn't think will change anytime soon.

If you can't join 'em, beat 'em (hopefully)
Tablets are a pretty big threat to Intel, as it currently lacks any design wins in that form factor, which is why it will also be pushing its Ultrabook reference designs very aggressively to fend off the slates.

Separately, IDC recently released its 2011 estimates with tablet shipments of 68.7 million units and sees 2012 shipments jumping by 54% to 106.1 million units, an increase from its prior forecast of 87.7 million. The tablet market's growth is another reason you need to be looking at mobile component plays right now.

Meanwhile, Canaccord Genuity thinks Apple might sell as many as 65.6 million iPads this year, which would imply a 62% market share when cross-referencing IDC's forecast. For 2013, the analyst thinks that figure could reach as high as 90.6 million, while Morgan Stanley's Katy Huberty thinks 129 million is possible next year.

That's a lot of gadgets not carrying Intel chips, instead carrying ARM chips from the likes of Apple, Qualcomm (Nasdaq: QCOM  ) , NVIDIA, and Texas Instruments, among others. Qualcomm's Snapdragons lead that pack, as the chipmaker grabbed 50% of all smartphone processor revenue last year.

Microsoft's (Nasdaq: MSFT  ) upcoming Windows 8 should give Intel an invitation to the tablet party, with Hewlett-Packard CEO Meg Whitman effectively confirming plans for such a device recently. The flip side of that coin is that Windows 8 is also letting ARM into Intel's traditional PC turf.

Apple vs. the world
Most people don't think of Apple as a "chipmaker." While it outsources manufacturing to Samsung and maybe eventually Taiwan Semiconductor Manufacturing one day, so does just about everyone other than Intel. So in that sense, it's as much of a mobile-chip maker as any of its ARM-licensing brethren.

Apple's chip strategy is clearly evolving, and although its A-family of chips is strictly destined for iDevices within its carefully curated garden, it's one that's growing so fast that not even Scotts Miracle-Gro Ortho Weed-B-Gon MAX can hold it back.

It would be quite a feat if Apple takes the gold, because that would mean that Apple's mobile products alone would surpass all of Intel's mobile customers combined in shipments.

Can Cupertino claim the crown? I think so.

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Fool contributor Evan Niu owns shares of ARM Holdings and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Intel, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Intel, NVIDIA, Scotts Miracle-Gro, Apple, and Microsoft, writing puts on NVIDIA, and creating bull call spread positions in Apple and Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2012, at 10:23 PM, jdwelch62 wrote:

    Problem is, Evan... Apple doesn't make its own chips. Yes, you tried to cover that late in your article, but the whole thesis of the article goes out the door when you start comparing Intel to Apple as a "chip maker". Totally different ballgame. Comparing Apple to the other ARM licensees, yes, that makes sense. But it's really apples to walnuts when you compare Intel to anyone who doesn't manufacture their own chips. Not even close...

    Sorry, Bro, but you're way off on this one. Compare Apple to Qualcomm, nVidia and TI, sure, but not Intel...

    :-)

  • Report this Comment On March 24, 2012, at 10:59 PM, winklerf wrote:

    The biggest problem with deciding who the mobile processor king is, is that Apple doesn't actually sell mobile processors. They sell iPads, iPhones and iPods. Conventionally, market share isn't apportioned by volume, but by revenue. It is really hard to discern such a thing for Apple when they don't sell chips.

    If the value of the sales of those chips were being measured, Apple will still be far behind when their volume surpasses Intel's, because cell phone processors sell for far less than notebook chips.

    As far as making predictions about when Apple's volume surpasses Intel's, that is not a simple calculation. How many phone chips is Intel going to sell this year, especially with their strong relationships in emerging markets, and what effect are the new Ultrabook and Windows 8 form factors going to have on the tablet market? The year 2012 is, as Otelinni said in his Q4 2011 conference call, going to be difficult to predict with regard to what form factors are going to emerge as successful. I agree with him and think the simplistic extrapolations being made have a very good chance of not being very accurate.

  • Report this Comment On March 25, 2012, at 12:53 AM, CUEngineer wrote:

    The title of this article speaks to the stupidity of analysts and basically underscores the problem with all of these investors on every site.

    None of you have a clue what your talking about, how do you even have a job? It's pathetic.

    Apple does not make mobile processors. It slap's IPs together and outsources the chip manufacturing.

    The only story is that apple is the leader in consumer mobile computing devices maybe. But then again that wouldn't be new news and I think the analysts really have nothing better to do than to try to influence stock prices with made up stories.

    Your comparing apples and steaks....

  • Report this Comment On March 25, 2012, at 1:14 AM, AnonymousWizard wrote:

    Okay, so Apple is not Intel and vice-versa but I agree with the overall theme here and that is Apple has another strategy in play of developing their own proprietary silicon for useage in Apple products that will naturally be about everything mobile. They acquired a Comapany with this talent some time ago and they intend to keep distanceing themselves from the me-too players as well as to further protect their Apple products from poachers. I definitely have always considered this proprietary chip design work as a key strategy with Apple to further protect their domain. Naturally, it also makes them less reliant on a Supplier that would sell a generic form to its competitors for easy adaptation to a similar design as Apple's designs. It is key to keeping Apple's uniqueness and another example of why Apple is far ahead of the pack that is reliant on Companies like Intel for competing products. Naturally Apple will have sold vast quantities as used in the designs and with improved product margins.

  • Report this Comment On March 25, 2012, at 2:00 AM, deasystems wrote:

    @CUEngineer: "Apple does not make mobile processors. It slap's IPs together and outsources the chip manufacturing."

    It doesn't slap IPs together; it designs and engineers its own chips using licensed ARM designs as a basis. That's what Apple's acquisition of PA Semi and Intrinsity was all about.

  • Report this Comment On March 25, 2012, at 3:03 AM, stretcho44 wrote:

    I am not scratching my head saying "what is this Fool talking about. The whole Fool organization has transformed from an organization that regularly produced intelligent and thoughtful articles to its current form: a factory for producing low quality spam. Yech!

    Please raise the bar and focus on quality rather than quantity.

  • Report this Comment On March 25, 2012, at 5:00 AM, borise29 wrote:

    Firstly, apple does not design its own processors yet... they may in the future, but at the moment they use ones licensed from and designed by ARM.

    Secondly, Samsung makes apples chips, so compare the industry Titan that is Samsung to Intel...Do Intel make huge ships... No, Samsung wins!

  • Report this Comment On March 25, 2012, at 5:13 AM, winklerf wrote:

    @deasystems

    While I'm not going so far as to discount Apple as a producer of microprocessors, they really don't count for much in that arena. They don't actually design anything themselves. They are slapping pre-designed blocks together. There is a little something to putting it all together, but not all that much compared to designing from scratch. Further, as competitors like Qualcomm put more design resources into shoring up ARM's weaknesses than ARM is, they might find themselves looking outward to replace their inferior internal product.

    A lot is being bandied about as to what constitutes a microchip producer. Many companies that solidly belong in that category do not have their own fabs for their ARM based processors. Three notables are Qualcomm, TI and nVidia. The only ARM producer that I can think of off hand that actually manufactures their own processors is Samsung.

    Having made this delineation, there are a lot of differences in how these different companies are servicing the ARM market. Qualcomm has a unique design that conforms to ARM protocols manufactured by TSMC. I'm pretty sure TI and nVidia use pretty vanilla ARM designs that rely on schematics and layouts produced by ARM for customers that use TSMC. I don't know if ARM has produced designs for the IBM alliance technology used by Samsung. My guess is yes, since there are quite a few manufacturers that use those technologies. Either way, Apple is probably using blocks developed by either ARM or Samsung that are derivative of the designs developed for TSMC since the cores retain the ARM "Cortex" name.

    One thing is pretty clear in all of this. Apple is being hyped to investors as having capability they do not have. They are highly dependent upon the future design performance of other companies for their future products to be competitive. They are not going to suddenly produce something that is better than anything else out there, because they are using industry standard stuff.

  • Report this Comment On March 25, 2012, at 12:57 PM, bsimpsen wrote:

    For those who think Apple does not do chip design themselves, think again. Apple has an ARM architecture license and the Intriinsity and PA Semi teams are actively altering the internal design of the ARM core to achieve higher speed/power product. TI, NVIDIA and a few others have such licenses, but most ARM vendors do not.

    The recent addition of Anobit will allow Apple to be the first SOC house to embed flash enhancing technology on the processor chip.

    That Apple doesn't actually fab their own chips is of little consequence. Foundry margins are low. Apple's margins on their IP contribution to the production of chips is probably closer to Intels. In addition, by controlling the end product, Apple is able to much more efficiently leverage their internal design staff.

    Intel must design compromise chips to address the needs of a vast array of customers. Apple can put all their wood behind fewer arrows and I think that leaves Intel highly vulnerable. Paul Otellini knows this and I imagine he's not happy about it.

  • Report this Comment On March 25, 2012, at 3:20 PM, jdwelch62 wrote:

    I agree that Apple is not just slapping other companies' IP together to make their own chips, but are utilizing their in-house talent to add value to their ARM license, making the A-series of chips unique.

    However, you cannot dismiss the significance of fab production so lightly. One of the reasons Intel enjoys >65% gross margins on its products is that it owns its own fabs. Someone has to do the fab work, and it's very capital-intensive and requires significant R&D to stay ahead of Moore's Law. Apple doesn't manufacture its own chips; it doesn't assemble or test its own chips; it has out-sourced all of that, which leaves them open to losing some control over their own IP and having it "stolen" from them (note the numerous lawsuits around the world stemmimng from Apple's claims that Samsung has filched some of Apple's IP to use in Samsung's own products)...

    Also, what you call "compromise" I call "open". History has shown that the market doesn't want to be stuck driving on Infinite Loop forever, but prefers a more open model. Apple's total control of their ecosystem may yet be their undoing, or at least a limiting agent that will stunt their growth at some point. That assumption requires that certain stars align, such as Windows 8 being well adopted and Intel's Atom chips making a dent in ARM's armour, but I don't think that's too much of a stretch to imagine. Look to the end of 2014 to see how this will all play out...

    Finally, I wouldn't presume to know what Paul Otellini knows, thinks or feels, but I trust him to lead Intel into better market positions in mobile computing while maintaining their dominance of the traditional PC and server landscape. Paul's been with Intel long enough that I'm sure he subscribes, at least in part, to Andy Groves' mantra that "Only the paranoid survive."

    Fool on!... :-)

  • Report this Comment On March 25, 2012, at 4:28 PM, Cam2456 wrote:

    So you count Apples MP3 players but not Intel's SSD's or network chips or misc. many other chips Intel makes. Why not even t playing a field a lttlle nitwits?

  • Report this Comment On March 25, 2012, at 8:10 PM, bsimpsen wrote:

    The playing field isn't level. Intel must make over a hundred different chips, across at least four generations of geometry, to keep its fabs busy. Apple does half the total unit volume across just half a dozen designs on just one geometry (45nm) (28nm is presumed to come along this year for A6).

    Apple gets the benefit of foundries spreading their development costs over many customers. Intel must absorb all of its own development costs itself. Their 22nm 3D process will buy them time, but Win8 on ARM might take time away.

  • Report this Comment On March 26, 2012, at 6:02 AM, winklerf wrote:

    @bsimpsen & jdwelch

    The A5 contains Cortex-9 cores. These are designed by ARM, not Apple. They are providing little in the way of "value added". They aren't designing a better processing core. They might be improving the data path, but that is doubtful since they are constrained by how the core fetches and manages the data.

    You two may want Apple to be an innovator in microprocessor technology, but they aren't. They have engineers that put together the IP that will provide them with the product they want. They don't actually design anything on their own.

    It is funny that bsimpsen brings up TI and nVidia as being similar to Apple. That is because they are like Apple in that they don't design their own cores either. Qualcomm, on the other hand, does design their own custom cores that process ARM microcode.

  • Report this Comment On March 26, 2012, at 6:18 AM, winklerf wrote:

    @bsimpsen

    Of all of the companies that produce ICs, who produces the most? The answer is Intel. This means that they actually have the most revenue to fund process development. This is why they are so far ahead of everyone else. They have said they have more room in their budget for process development, but the tool companies can't keep up.

    As for 28nm later this year from Samsung, I wouldn't count on it. The IBM alliance processes always over promise in their advertising how well they're doing. They talk up a big game about how they're going to cut Intel's lead every cycle, and it hasn't panned out yet. Just to make the picture a little clearer, Samsung and AMD both use the same process development through the IBM alliance. It is possible they will pull a rabbit out and have 28nm working at good volume and yield this year, but that is extremely unlikely giving their track record.

  • Report this Comment On March 26, 2012, at 10:08 PM, jdwelch62 wrote:

    @fidgewinkle:

    I stand corrected. Thanks.

    I am long INTC.

    Just sold 1/3 of my AAPL holdings today to take profits and add a particularly juicy opportunity to my portfolio. I give AAPL another 3 years, max, before they run out of ideas that Jobs probably left for them in their pipeline...

    :-)

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