Apple Is Going Chip Crazy!

It's pretty amazing how much flak investors give Apple (NASDAQ: AAPL  ) for not "innovating." While the company hasn't introduced a new product category in quite some time, it has spared no expense in building up its in-house semiconductor IP design and system-on-chip integration teams. Indeed, Apple appears to be going "chip crazy" in its aggressive hiring for its semiconductor teams. Let's find out just how all-out Apple is really going here.

Did somebody order some chips?
A trip to Apple's job boards and the entry of the fairly innocuous keyword "chip" leads to no less than 114 job postings:

Source: Apple

This is probably doesn't cover anywhere near the breadth of chip-related engineers that Apple is looking to hire. A few hot keyword searches such as "CPU" and "GPU" turn up a broad swath of most likely disjointed results:

Source: Apple

Source: Apple

That explains a good chunk of Apple's R&D increase
Take a look at the trend in Apple's research and development spending over the last several years:

Source: YCharts

Over the last four years, Apple has nearly quintupled its R&D spending. While a good chunk of this is likely on actual device development and software development, a significant portion is likely dedicated to the development of world-class mobile chips. Further, Apple's R&D spending continues to skyrocket, suggesting that the innovation engine -- a good part of which is related to chips -- is still quite alive.

Why this is important
At the end of the day, Apple's mission is to develop the world's best products. While many semiconductor industry bears continue to chant the tired mantra that today's processors are "good enough," the truth is that new experiences and new functionality are fundamentally driven by advances in semiconductor technology and designs.

While Apple could certainly get away with using an off-the-shelf chip design from Qualcomm (NASDAQ: QCOM  ) which does a superb job with its system-on-chip products, it is likely that Apple seeks to optimize its processors in a way that differs from what the rest of the merchant chip industry is doing. We already saw Apple's A7 blow the competition away across the board, and it is likely that future A-series processors could hold a pretty sizable performance-per-watt lead on iOS over the rest of the ARM (NASDAQ: ARMH  ) chip players. Apple builds chips using an ARM architectural license, meaning that Apple designs the chip to be able to run the same software that ARM's own designs do. 

Foolish take
Apple is dead-serious about chips, and it is encouraging to see that Apple is really pushing hard on the semiconductor side of things. While it is unlikely that the trend will be for the device makers to do their own chips -- the merchant landscape is quite exceptional today -- this is just one more thing that makes Apple so interesting from an innovation standpoint. 

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  • Report this Comment On February 03, 2014, at 1:36 PM, SimchaStein wrote:

    Great article.

    Apple understands that they must beat or exceed Moore's Law. Hence they invest in the chips and SW to maintain their advantage. This translates to customer loyalty, sustained margins, and growth.

    The common cliche is that HW commoditizes. This is based on a false view of the PC market only. And misses the point even there. In PCs, the two holders of IP were Intel and Microsoft, who both invested heavily, retained the profits and were NOT commoditized. In the last 7 years, though, both lost their edge and both missed 'mobile'.

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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