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Apple, Inc. Continues to Be a Major Chip Player

By Evan Niu, CFA – Sep 19, 2016 at 12:54PM

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The Mac maker isn't stopping with its industry-leading chip aspirations anytime soon.

Apple A10 Fusion. Image source: Apple.

Over the years, Apple (AAPL -2.63%) has been increasingly focused on its own in-house chip design. What started in 2010 with the original A4 has continued to evolve as Apple branched out its A chips for different designs and purposes. The Mac maker then took the mobile chip industry by storm when it unveiled the 64-bit A7 in the iPhone 5s in 2013. There are even X variants of some chips that feature stronger graphics performance.

Apple isn't taking any breathers, and continues to push its world-class semiconductor team, making the company one of the most powerful forces in mobile chip development. The A10 Fusion chip in the iPhone 7 is comparable in performance with low-end Intel (INTC -2.10%) laptop processors.

Three's company

Beyond A chips that power iPhones, iPads, and Apple TVs, Apple has started designing an increasing number of chips for its products. The original Apple Watch that launched last year featured a new Apple System-in-Package (SiP) S1, a tiny processor to fit inside wearable designs. The follow-up this year was the dual-core S2 for Apple Watch Series 2, while Apple even went back and beefed up the Series 1 with a dual-core S1P.

The third type of chip that Apple has now added to the mix is the new W1 that powers Apple's wireless AirPods as well as a lineup of new wireless Beats headphones. The W1 delivers audio playback as well as the Bluetooth connectivity.

Apple W1. Image source: Apple.

So now we have A chips, S chips, and W chips, all from Apple. While S chips and W chips are relatively new, they are certainly just starting points for ongoing development and Apple has no intention of stopping anytime soon.

What's next?

Intel only recently won its way back into the iPhone after a half-decade hiatus, and the chip giant now provides baseband modems for certain iPhone models. Yet, evidence has been accumulating for years that Apple is interested in building its own baseband modem. Even as Apple has become a dominant force in mobile chips, it remains the only major player that has yet to integrate cellular capabilities directly into its processors. It's only a matter of time.

Meanwhile, those other rumors that Apple will eventually put A chips in Macs have also persisted for years, and the performance gap continues to shrink as Apple catches up with Intel. Intel may always have the lead with high-performance processors, but A chips could easily supplant Intel for consumer needs. The bigger strategic challenge will be navigating the software compatibility around different chip architectures, but Apple pulled that off seamlessly a decade ago when it switched to Intel.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Intel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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