The launch of the iPad 2 in March started another round in the fight about who has the best mobile device processor. Apple (Nasdaq: AAPL) follows its own path by developing a proprietary mobile processor. If Apple develops a superior processor and has enough scale, this gives the company another competitive advantage in the mobile space. On the other hand, the tech industry has been shifting to industry standard components for decades. Apple switched its Macs to Intel (Nasdaq: INTC) processors in 2006. If Apple were to fall behind in processor designs, there's a litany of mobile processors designed around ARM Holdings' (Nasdaq: ARMH) licensed technology.
The sticking point on Apple's processor right now seems to center around size. The A5 is a whopper, at over twice the size of NVIDIA's (Nasdaq: NVDA) Tegra 2.
On one side of the processor debate is an RBS analyst who believes Apple could be leading a trend toward larger processor designs and its large size isn't a concern. And since competing chips from companies such as NVIDIA and Texas Instruments (NYSE: TXN) may face cost limitations in their attempt to appeal to a broad set of customers, Apple can create a more expensive processor that differentiates itself.
Does size matter?
On the other side is a Raymond James analyst rooting for NVIDIA, which makes -- in its own words -- "the world's first mobile super chip," the Tegra 2. He believes the large physical size of Apple's iPad 2 processor, the A5, shows Apple is "falling behind -- way behind." (In the world of semiconductors, all else being equal, smaller is faster, cheaper and less power hungry.)
Apple has stated that the A5 is a 1 GHz dual-core processor. That's enough for direct comparisons to NVIDIA's Tegra 2, which is a dual-core ARM processor used in Motorola Mobility's (NYSE: MMI) Xoom tablet.
PC Magazine's tests using three different benchmarks to compare the Tegra 2 and A5 were inconclusive, although they noted the iPad 2 was three times faster than its predecessor and said that "well-written software matters even more than hardware for many aspects of user experience." Nice slam on Google's (Nasdaq: GOOG) Android.
Tests cited by the RBS analyst backing the superiority of Apple's A5 chip were more definitive. RBS said the iPad 2 is 3.7 times faster than the Xoom and praised the A5's graphics processor. This difference was partially attributed to NVIDIA being constrained by price-sensitive customers, which would be consistent with Steve Jobs' comment that the "iPad incorporates everything we've learned about building high-value products ... our competitors' products, which will offer less for more."
Foolish takeaway
Apple investors needn't distract themselves over the processor debate. NVIDIA investors should. Apple's software is an advantage and may leverage custom processor capabilities to deliver strong performance. Additionally, Apple's switch to Intel for Macs shows it will pursue whatever processor strategy has the most merit.
To keep up on any company listed above, add them to our free watchlist service today!
- Add Apple to My Watchlist.
- Add ARM Holdings to My Watchlist.
- Add NVIDIA to My Watchlist.
