Apple’s Re-aggregation Anomaly

Apple’s new iPad is an interesting device not so much because of what it offers to consumers—that’s certainly interesting in its own right—but because of how Apple built the device and why.

Apple has been scouring the market for seasoned semiconductor engineers of late. The process started two years ago when the company hired a team of former engineers from the late Digital Equipment Corp. who migrated first to PA-Semi, aka Palo Alto Semiconductor, and more recently to Apple. This is a rather odd trend, on the face of it, considering most companies have been outsourcing that part of their computer engineering. Apple had abandoned its own chip development efforts in its Mac line because Intel was beating the pants off everyone (which helps explain why Intel has run into so much scrutiny from regulatory agencies).

The folks at Apple haven’t gone entirely mad, however. The first details of its plan to develop its own chip began leaking out when a deal with a large Asian semiconductor company went sour. According to several sources, Apple’s initial iPhone deal called for this Asian company to provide the logic, memory and processor for the iPhone. But after a year of growing iPhone sales, this company also began shipping its own version of a smart phone that had some of the same feature sets as the iPhone.

Word on the street was Apple wasn’t happy. We have no idea what got broken or smashed in this fit of rage, but realize these folks are still reeling from the lawsuit with Microsoft that claimed theft of Apple’s graphical user interface in Windows 3.0. It doesn’t matter that Xerox invented this technology first. Apple brought it to market first, and it put Apple and Silicon Valley on the map. What took much longer was for Apple to establish itself as a brand that cut across business and consumer markets, which is where the iPhone came in.

Rather than risk a repeat performance with Microsoft, Apple began taking its chip development in-house again. It has been competing for engineers with well-known chipmakers in Silicon Valley, and it has been building in the kinds of things that it has been slammed for in the past, like lower power consumption and better utilization of cores.

But will competitive paranoia really drive a re-aggregation trend, or is Apple just so unusual that it will continue to carve its own path? These kinds of trends are best viewed in retrospect, and right now it’s still something happening in the future. The iPad isn’t on shelves yet and so far Apple is still using Intel chips in its Macs.

–Ed Sperling