In a previous column, I wrote that Apple (NASDAQ:AAPL) potentially faces the risk of being left behind in terms of chip manufacturing technology during the first half of 2017. Indeed, while the A10 chip that will power the iPhone 7 will be built on TSMC's (NYSE:TSM) 16-nanometer FinFET Plus technology, it is looking like flagship Android device makers may have access to processors built on a more advanced 10-nanometer technology.
In this case, Apple could potentially fall behind in processor performance and efficiency, impacting the competitiveness of its products during the first half of 2017.
What's the news?
According to a post from a well-known Chinese micro-blogging website Weibo, Qualcomm's (NASDAQ:QCOM) next-generation Snapdragon 830 processor -- the successor to the Snapdragon 820 that is slated to appear in devices over the next couple of months -- is on track to launch in "early 2017."
The chip is said to be built on Samsung's (NASDAQOTH:SSNLF) 10-nanometer chip manufacturing technology. According to a paper that Samsung is set to publish at the International Solid State Circuits Conference, its 10-nanometer technology delivers area scaling of around 0.63 times compared to its prior-generation 14-nanometer technology.
Samsung has not publicly commented on the performance/power gains at 10-nanometer relative to its 14-nanometer technology to my knowledge, however.
What does this mean for Apple, if true?
The move to new chip manufacturing technologies generally brings two things. First, the new technologies often include enhanced transistors, the fundamental building blocks of chips. These enable higher chip speeds and lower power consumption at a given level performance.
The second thing that the areal density improvements bring is the ability to pack more functionality into a given area, such as bigger CPU cores, more cache memory, additional graphics processors, and so on.
If Qualcomm is shipping 10-nanometer product in high volumes to its key mobile customers at the high end of the smartphone market (think Samsung, Xiaomi, HTC, and so on), then all of those vendors could enjoy processor leadership over Apple until the latter rolls out the iPhone 7s.
Don't underestimate the power of processor leadership
There is a reason that Apple spends a significant amount of time at its product launches boasting about the gains that its latest A-series processors delivered over the prior-generation models. This is a big selling point.
Furthermore, although Apple doesn't compare its chips to the competition, its chip prowess is widely reported on in the media and reviewers often use performance tests to make device recommendations.
This is a big deal; there's no question of it in my mind.
What is Apple to do, then?
If the leak is correct that Qualcomm will be launching its first 10-nanometer chips in high volumes to customers in early 2017, then -- assuming a September iPhone launch schedule -- Apple will trail its Android competition by a good six months in terms of product availability in the market.
Six months is a long time, and in my view, ample time for Apple to potentially lose market segment share, particularly if the new 10-nanometer chips from Qualcomm enable significantly enhanced features relative to what the 16-nanometer A10 will be able to do.
One option for Apple might be to pull in the launch of the next-generation iPhone from a typical fall launch to one in mid-2017, around the time frame of the company's annual developer conference. However, depending on the availability of other components that will go into the device, this may not be feasible.
It will be interesting to see how this all plays out; I suspect that Qualcomm will reveal more details about the timing of its next-generation Snapdragon processor at its financial analyst day next month. After that, I think we should have a good read on when to expect Snapdragon 830-based devices to arrive in the marketplace.
Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. 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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