Fast Forward: Why Apple Designs Chips

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Many people still think of Apple as a relatively small computer company, even though it’s a large consumer-electronics company. Those folks were surprised by recent reports that Apple is hiring more chip designers. They question the wisdom of plunging deeper into the risky and costly venture of designing custom chips.

But Apple’s moves are a logical response to current events. We are witnessing a fundamental shift in computing, as important as the debut of personal computers in the 1970s.

Desktop PCs—and to a lesser extent, notebook PCs—are the old wave. The new wave integrates mobile computing and communications with ubiquitous Internet access. Although notebook PCs can ride this wave, they are the largest species of new personal computers. Netbooks are better examples. Best of the new breed are the Apple iPhone, RIM Blackberry, and Palm Pre. More are coming.

It’s been two years since the wildly popular iPhone appeared, yet major cell-phone makers still haven’t introduced similar models. They were caught flat-footed. The iPhone redefined the smartphone with innovative hardware and software, just as the Macintosh redefined desktop computers in 1984.

For 25 years, Apple’s strategy has been consistent. Apple differentiates its products with custom hardware and software so it can charge higher prices and earn greater profits than commodity-minded competitors using off-the-shelf components.

Small systems like the iPhone need custom chips optimized for specific tasks. These chips burn less power (lengthening battery life), occupy less space (improving portability), and deliver greater performance (enhancing the user experience). It’s true that chip design is risky and expensive, but Apple has the experience, money, and talent required for these projects, and is accumulating more.

No one questions why consumer-electronics companies like Sony, Canon, Matsushita, Toshiba, and Samsung design custom chips. With products like the iPod and iPhone, Apple is joining that league. Apple has always been good at surfing waves—largely because it’s a tidal force helping to make them.

Tom Halfhill was formerly a senior editor for Byte magazine and is now an analyst for Microprocessor Report .

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