Apple Moving Chip Design In House To Keep The Margins High

Posted: Apr 5 2017, 6:39am CDT | by , in News | Apple

Apple Moving Chip Design In House to Keep the Margins High

Metal makes it so Apple can change chips without messing with the workflow of its developers

For many companies as costs decrease for building their gadgets, those reductions in cost are passed onto the consumer in the form of lower prices. The idea is that at a lower cost more people will buy and the company makes more money. Apple doesn't think like other companies mostly because it doesn't have to. The company has a much higher number of affluent buyers who buy based on style and looks than price and performance than other companies typically have.

What that means is that when Apple starts to do things to lower its production costs, such as bringing chip design in house, it does this not necessarily to pass on savings to consumers but to keep its famously high margins intact. This is what is going on with the announcement that Apple will be reducing its dependence on the graphics chips that Imagination Technologies is making for Apple right now.

Apple seems to think it can bring production of graphics chips in house without infringing on the patents that Imagination holds. Imagination isn't convinced that Apple can significantly change the design of its own graphics chip enough to avoid infringement, but Apple says it can. Assuming Apple can avoid any patent issues, having its own chips would lower costs for Apple and reduce dependence on outside companies. These are both things that Apple has moved to do in the past.

None of those moves has resulted in cheaper devices for Apple buyers though, they have just kept or padded Apple's margins. Apple previously reduced its dependence on ARM by bringing the production of its iPhone processor in house. Apple still licenses basic ARM architecture and designs its own chips.

Apple does this with all of its product lines to eliminate outside sources as it is able to. This is what Apple did when it bought Beats Electronics back in 2014 and then ditched all the conventional communications chips inside and replaced them all with its own W1 Bluetooth chip that was designed in house.

"Today we do much more in-house development of fundamental technologies than we used to," Apple Chief Financial Officer Luca Maestri said at a February conference. "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."

Part of what allows Apple to bring things in house and design its own chips is that the company is big enough to support that sort of thing. For most companies the cost of bringing design inhouse is out of reach. This is why so many different brands of products use ARM, Qualcomm, and NVIDIA chips.

Apple was hinting that it would move to its own chip design when it launched Metal, which is something that allows developers to write code allowing their apps to talk directly to the graphics processor of the iPhone. The cool part about Metal is that it allows Apple freedom in what chipset it uses inside the hardware. By placing a middle man in the form of Metal between the apps and the graphics chip. Apple has made it so that the graphics chip can be changed out without having to change the way developers work.

"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.

If you are wondering how much money Apple stands to save by moving away from Imagination's chips, Business Insider says that Apple spends about $75 million a year on licensing fees for its chips alone.

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<a href="/latest_stories/all/all/3" rel="author">Shane McGlaun</a>
Tech and Car expert Shane McGlaun (Google) reports about what's new in these two sectors. His extensive experience in testing cars, computer hardware and consumer electronics enable him to effectively qualify new products and trends. If you want us review your product, please contact Shane.
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