File this one under “Expected, but glad we got confirmation.” Apple’s senior VP of hardware technologies, Johny Srouji, confirmed in a company town hall that the firm is designing its first 5G modem. “This year, we kicked off the development of our first internal cellular modem which will enable another key strategic transition,” Srouji said. “Long-term strategic investments like these are a critical part of enabling our products and making sure we have a rich pipeline of innovative technologies for our future.”
Apple’s decision to buy Intel’s 5G modem division last year made it clear that the company wanted to move in this direction, and it’s easy to see why. Apple is transitioning to its own CPUs and GPUs over the next few years and it already builds the W-series and H-series of chips, which offer Bluetooth and Wi-Fi connectivity. Add a 5G modem, and Apple owns three of the most profitable chips in any given electronics device.
Apple signed a six-year patent agreement with Qualcomm last year, but that doesn’t automatically mean we won’t see an Apple modem until 2025. Complex patent-licensing deals in smartphones are the norm, not the exception, and Apple may need to have an ongoing patent agreement with Qualcomm in order to legally ship devices. It isn’t even necessarily to Apple’s disadvantage if it takes a few years to finish making its own device.
Apple has been building a narrative around the idea that designing its own hardware and software allows it to craft products that are just a little bit better then the competition for years, but the M1’s launch gave that argument new teeth. As Apple converts its product lines over to ARM over the next 12-24 months, it can evolve that argument to encompass both CPUs and GPUs. If it did take until 2023 or 2024 to launch its own modem, Apple could simply point to this as the long-term story of what made the Mac superior to other forms of hardware. The weight of reliable cadence tells a story all its own, as the nearly decade-long success of Intel’s “Tick Tock” marketing strategy illustrates.
At the same time, cellular modem design is considered to be genuinely difficult. Not much is publicly known about the state of Intel’s 5G modem before Apple bought it, but it obviously wasn’t on schedule. If Apple was able to take Intel’s design and accelerate its development, the company may have a slow but predictable roadmap to market. If it had to restart development to fix major problems, it might still take a while.
Apple’s tremendous success validates (if further validation were needed) the so-called “foundry model.” Prior to the founding of TSMC, companies that sold microprocessors also built them. “Real men have fabs” is a famous saying of AMD’s co-founder and first CEO, Jerry Sanders — and when he said it, it was still true.
TSMC proved that a pure-play foundry dedicated to building silicon for various customers could be tremendously successful. As the cost of building new foundries has risen, the number of companies that could afford to spend the staggering amounts of money required to compete on the leading edge has shrunk. Right now, TSMC is competing with itself on the 5nm node, though Samsung’s variant will hit market when smartphones based on its Exynos 1080 ship, likely in 2021.
Whether you like Apple products or not, the company has built something unique — namely, a product ecosystem used by hundreds of millions of people worldwide, running on its own software and soon, its own hardware. Intel and Samsung have their own manufacturing facilities, but no equivalent operating system. Google has a larger reach in mobile and is gaining ground in education thanks to Chromebooks, but it lacks Apple’s experience with SoC design.
There was a time when companies built these kinds of ecosystems — see IBM and the System/360 — but it hasn’t been common for a very long time. Separating the cost of manufacturing silicon from the cost of designing it has allowed Apple to assemble a remarkable product ecosystem without having to simultaneously juggle the difficulty of running a leading-edge fab.
Now that Apple has put itself on a path to reassembling a hegemonic ecosystem not seen since Big Blue truly bestrode the Earth, maybe it could address recent allegations that it requires its manufacturing partners to staff in ways that violate Chinese labor laws, and drop its reported opposition to a US bill banning American companies from working with Chinese firms that use Uyghur slave labor.
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