Apple to design its chips in-house

This development is a major milestone for Apple. Not only will it streamline its supply chain it will also help shore up its profitability.

In a strategic development, Apple Inc’s decision to stop licensing graphics chips from Imagination Technologies Group Plc is seen as underscoring its intention to get greater control of the technologies that go in its devices.

The development will guard Apple’s sizeable margins as well position it for greater innovation in the future especially in the area of augmented reality.

Analysts are portraying the development as Apple reducing external dependencies on critical components.

Earlier it used to outsource its critical supplies from ARM Holdings Plc, now owned by SoftBank Group Corp. In fact to design the processor of its flagship device, the iPhone, Apple had heavily relied on ARM. However, now it only licenses the basic ARM architecture and designs most of the chip by itself.

In 2014, having acquired Beats Electronics for $3 billion, Apple had ripped out the existing off-the-shelf communications chips and replaced them with its own customised W1 Bluetooth chip.

“Apple clearly got rid of all the conventional suppliers and replaced about five chips with one,” said Jim Morrison, vice president of TechInsights, a firm that examines the chips inside electronics devices.

“Today we do much more in-house development of fundamental technologies than we used to,” said Luca Maestri, Apple’s Chief Financial Officer. “Think of the work we do on processors or sensors. We can push the envelope on innovation. We have better control over timing, over cost and over quality.”

Most vendors of consumer electronics products typically outsource the design of chips and their development since to do so in-house is prohibitively expensive. Companies which design chips, such as Qualcomm Inc, ARM and Nvidia Corp, have development semiconductors with core technologies for processing, communications and graphics which they distribute to consumer electronic companies and make a neat pile in the process.

But now that Apple has accumulated significant cash reserves, it can afford to create chips with its own designs or license small portions of someone else’s work and then build on it.

Decrease complexity

With Apple assimilating the chip designing process in-house, people familiar with the matter at hand have said that, this decreases complexity. Instead of managing multiple design teams and a chip contract manufacturer, Apple will now only have to manage the chip fabricator.

The move could streamline Apple’s supply chain management and result in cost-cutting benefits. It will also help Apple focus on new growth areas such as virtual and augmented reality.

Tim Cook, Apple’s CEO has indicated that the company will integrate augmented reality into its products. This move should be seen keeping that in the background.

The development also allows Apple to better optimise the capabilities of the graphics processor. Apple has introduced its own platform for App developers called Metal. By allowing programmers to closely interface with the platform, developers need not worry about the intrinsic values and capabilities of individual chipsets since that portion is handled by Metal.

The strategy of putting Metal in the middle, think of it as a broker, allows Apple to bridge the gap for developers between the graphics chips, Apple’s developers and its various products, desktop computers, tablets and smartphones.

Handled separately, app developers would have to code separately for every product category. But now they will not have to.

“By promoting Metal instead of relying on other existing standards, Apple is not only able to control what graphics chip functionality is exposed at its own pace, but also blur the line for developers between coding for desktop and mobile GPUs,” said Pius Uzamere, the founder of a virtual reality startup called Ether.

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