Please ensure Javascript is enabled for purposes of website accessibility

Apple Inc. May Fall Behind MediaTek, Qualcomm

By Ashraf Eassa - May 4, 2016 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These two chipmakers are expected to transition to more advanced 10-nanometer technology before Apple does.

Image credit: Apple. 

Apple (AAPL 1.62%) has earned quite a lot of praise for its chip-design prowess. Since its acquisition of P.A. Semiconductor in 2008, it arguably has transformed into the leading designer of mobile-targeted applications processors. 

During the past two product generations (iPhone 6, iPhone 6s), Apple has led the transition to new chip-manufacturing technologies. Apple's A8 and A8X processors were the first applications processors built on TSMC's (TSM -5.81%) 20-nanometer manufacturing technology. The Apple A9 was the first applications processor available on TSMC's 16-nanometer FinFET Plus technology.

It would seem, however, that Apple will not lead the charge into the next chip-manufacturing technology: 10-nanometers.

MediaTek may be the first to TSMC 10-nanometer
TSMC has said publicly that it expects to begin to see "sizable" revenue from its 10-nanometer technology "starting from 2Q 2017 through 2018." This suggests that TSMC will begin to recognize wafer revenue by the end of the second quarter (June), implying that wafer production should begin roughly three months before then.

According to analyst Pan Jiutang (via GSMArena), MediaTek's 2017 flagship Helio X30 will use a 10-nanometer manufacturing technology. Given that the Helio X20/25 launched in Q1 2016/Q2 2016, it wouldn't be unreasonable to expect the X30 to arrive in Q1/Q2 of 2017. 

It is also expected that Qualcomm's(QCOM -3.30%) upcoming Snapdragon 830 will be built on a 10-nanometer process. (Samsung (NASDAQOTH: SSNLF) is believed to build this chip, though.) The Snapdragon 830 is expected to arrive in early 2017. 

The implications for Apple
There are two critical ingredients that define the quality of a chip: the manufacturing technology that it's built on, and the underlying architecture. Think of the manufacturing technology as the canvas, while the architecture is the actual painting. All else being equal, a better canvas should mean a better painting, but a lousy artist with a great canvas isn't going to produce something as good as a great artist with a mediocre canvas. 

Apple's architectures are generally superb, so the 16-nanometer FinFET+ A10 chip that will debut this year in the iPhone 7-series phones may be able to keep up in terms of performance with the 10-nanometer Qualcomm and MediaTek chips. However, Apple will be tying one hand behind its back, so to speak, because the 10-nanometer technology should allow MediaTek and Qualcomm to pack in more functionality, and deliver better performance than they otherwise would have been able to on 14-nanometer/16-nanometer FinFET+.

With Qualcomm and MediaTek supplying 10-nanometer chips to most of Apple's premium smartphone competitors, Apple risks falling behind in chip power efficiency, and potentially, performance -- depending on the architectural choices from its competitors.

It may not be a big deal, but why should Apple risk it? 
Some might argue that Apple being approximately four-to-five months behind in transitioning to a new chip technology isn't going to be a big deal for most people. However, I would argue that a non-trivial portion of those who purchase premium smartphones care about these sorts of things.

Additionally, if Apple loses the chip-performance crown midway through the iPhone 7 cycle, the reputation for chip-technology leadership that Apple has built during the last three years -- i.e. first to 64-bit, first to 20-nanometer, first to TSMC 16FF+ -- could be damaged.

Given all the other areas that Apple seems to be behind in these days (display technology, camera quality, etc.), and given how desperately Apple needs to make sure its iPhone business returns to growth, chip leadership is something that the company should strive to maintain.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$138.93 (1.62%) $2.21
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$123.53 (-3.30%) $-4.21
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$77.00 (-5.81%) $-4.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.