[Apple Shockwave] ⑤ Seeing Israel Reveals Apple’s Present Situation

Jobs Lays Foundation for Apple Silicon with PA Semi Acquisition
Semiconductor Head Johnny Sruji from Israel
Israel Plays Leading Role in Apple Semiconductor Design

Editor's Note[Apple Shockwave] is a content series that explores the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the key player in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and massive investments in semiconductor production facilities, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

"I always wanted to own and control the technology that underpins everything we do."

This was said by Steve Jobs, Apple’s founder, in an interview with BusinessWeek in October 2004. At that time, Apple was relying entirely on 'PortalPlayer' for the chips used in the iPod. The 'PowerPC' CPU used in Mac computers rarely met Jobs' expectations. Jobs craved powerful 'power' for Mac computers to compete against PCs using Intel chips. However, one year after this interview, in 2005, Jobs abandoned the painstakingly developed PowerPC and joined hands with his rival, Intel. At the time, this was a shocking 'sleeping with the enemy.' A year later, in 2006, the image of Paul Otellini, then Intel CEO, wearing a cleanroom suit and carrying semiconductor wafers at an Apple event made it seem as if Apple had given up on semiconductors. Most executives would have done so. But Jobs was different. He quietly launched a behind-the-scenes operation to secure semiconductors.

Steve Jobs (left), Apple founder, is holding a wafer handed over by Paul Otellini, Intel CEO, who appeared wearing a cleanroom suit at the 2006 WWDC event. Photo by YouTube

Winning Move Through M&A and External Talent Acquisition

Jobs initially adopted a 'two-track' strategy: entrusting PCs to Intel while focusing all efforts on chips for mobile devices. He left powerful performance chips to Intel and pursued mobile device chips, which were just beginning to bloom, in-house. He distinguished between power-hungry chips and low-power chips for portable devices. Through in-house development, he bet the company's fate on low-power chips.

Jobs also needed time. The first iPhone, launched in 2007, did not contain Apple’s semiconductor technology. The chip used was made by Samsung Electronics for DVD players and other devices. Samsung’s chip also fell short of the performance level Jobs desired.

Jobs made a decisive move. The method was mergers and acquisitions. He leveraged the advantage of acquiring companies with technologies Apple lacked, securing their achievements and personnel intact.

In 2008, Apple acquired semiconductor design company PA Semi. Founded by Daniel W. Dobberpuhl, a former DEC veteran who was a powerhouse in microprocessors from the 1970s to mid-1980s, PA Semi was a significant acquisition. Before founding PA Semi, Dobberpuhl had established Cyrix, a semiconductor company he sold to the major player Broadcom. In 2004, just before turning 60, he unexpectedly left Broadcom to declare independence and launch PA Semi. The goal was to challenge Intel and IBM’s dominance in servers, storage, and various embedded microprocessors. For the founder who developed DEC’s masterpiece 'Alpha chip,' this was a natural choice.

Before being acquired by Apple, PA Semi had high hopes for Apple. Apple tested whether PA Semi’s CPUs could be used in Mac computers. The startup PA Semi was excited, thinking a major deal with Apple was imminent, dreaming of a big hit like PortalPlayer. Then, at the 2005 WWDC, Jobs suddenly announced the transition to Intel CPUs. There was no place for PA Semi. PA Semi was blindsided by Jobs. It was like a dog chasing a chicken and looking up at the roof. However, instead of buying PA Semi’s products, Jobs chose to acquire the entire company.

The 'Rockstar' of the semiconductor industry, Jim Keller. Photo by Jim Keller LinkedIn

The acquisition of PA Semi was successful. The US IT media ITWorld cited the PA Semi acquisition as one of Apple’s top 10 M&A achievements. The acquisition secured top-tier semiconductor talent. 150 semiconductor experts became Apple employees. A representative example is Jim Keller. Keller worked with Dobberpuhl at Cyrix and Broadcom, then at PA Semi, and finally designed semiconductors at Apple. Keller led the creation of Apple’s first in-house designed application processor (AP), the 'A4.' It was the starting point of Apple’s semiconductor independence.

Keller’s remarks about the situation at the time reveal why Apple Silicon was born. In an interview with VentureBeat, Keller said, "At that time, I didn’t know what I was supposed to do at Apple. They only said it was a secret. Independence from semiconductor companies was Jobs’ idea." Jobs even implemented his characteristic information blackout measures for semiconductor design staff. Jobs himself drew the blueprint for completing vertical integration of software and hardware through Apple Silicon.

Apple also acquired Intrinsity, which designed the chip used in the first iPhone alongside Samsung Electronics. Apple invested $278 million and $120 million respectively in acquiring PA Semi and Intrinsity. The approximately $400 million investment, about 520 billion KRW, returned enormous profits. Through in-house designed chips, Apple broke the existing semiconductor industry formula and introduced products that competitors found hard to follow. By making chips internally instead of buying them externally, profits soared. Apple Silicon is credited with playing a decisive role in Apple’s rise as the world’s first $3 trillion company.

Israel Gives Wings to Apple Silicon

Israeli President Reuven Rivlin is shaking hands with Johnny Srouji, Apple Vice President, who visited his office in 2015 (left). President Rivlin reportedly warmly welcomed Srouji, who is originally from his country. Photo by the Israeli President's Office

If PA Semi was the starting point of Apple Silicon, Israel is its present. The meeting of Apple and Israel gained momentum when Johny Srouji, the current head of Apple Silicon, joined Apple. Srouji, from Israel, assisted Jim Keller in designing the A4 chip and has been effectively responsible for Apple Silicon since Keller’s departure. Having designed chips at Intel and IBM, Srouji remains an enigmatic figure. He rarely appears in the media, and interviews with him are few. Srouji completed the Apple Silicon roadmap from A, S, W, U to M under Tim Cook, spanning the Jobs era.

Recently, Srouji has even been regarded as Apple’s most important executive. While hardware (Tony Fadell), software (Scott Forstall), and design (Jony Ive) leaders have left the company, Srouji, as senior vice president, has led Apple Silicon innovation by overseeing semiconductors and batteries.

Apple CEO Tim Cook met with Reuven Rivlin, then President of Israel, in 2015. CEO Cook explained to President Rivlin that Israel had become an important part of the Apple ecosystem. Photo by Rivlin, former President, YouTube

Srouji also led Apple’s move to Israel. He was deeply involved in establishing Apple’s first research organization outside its California headquarters, the Herzliya R&D Center in Israel. Apple also established an R&D center in Haifa, Palestine, Srouji’s hometown. While Apple emphasized 'Designed in California,' its semiconductor chips?the brain?were being developed in Israel. Shortly after establishing the R&D centers in Israel, Apple surprised competitors in 2013 by unveiling the industry’s first 64-bit mobile chip, the 'A7.' Ryan Smith, editor-in-chief of semiconductor media AnandTech, said, "The A7 really turned the world upside down."

Srouji accompanied CEO Cook on his visit to Israel. Cook met with then Israeli President Reuven Rivlin, with Srouji attending. President Rivlin joked, "Imagine what the world would be like if there were five more Johny Sroujis," to which Cook replied, "If you find five more Sroujis, please let me know where they are." Rivlin also emphasized diversity, noting that Srouji is an Israeli Arab.

The 'M1,' which shocked the semiconductor industry, is also known to have been largely designed in Israel. The Apple Silicon research workforce in Israel has now exceeded 2,000. Even now, dozens of semiconductor job postings for the Herzliya and Haifa R&D centers are listed on Apple’s website. Last year, Apple also established a separate semiconductor research organization in Jerusalem.

Apple's Herzliya R&D Center in Israel. Photo by Google Street

Srouji’s remarks illustrate Israel’s importance in Apple Silicon. In an interview with Israeli media, Srouji explained, "Israel plays a central role alongside the Cupertino headquarters in developing chips including the M1, M1 Pro, M1 Max, and premium versions of the M1 processor."

Srouji also acknowledges that Apple Silicon’s success originated with Jobs. In an interview with Bloomberg, he said, "Steve concluded that the only way for Apple to truly differentiate itself from competitors with unique and excellent products was to own and control its own semiconductors."

The Apple homepage has a job posting for the Israel Herzliya R&D Center.

Srouji once had the opportunity to become Intel’s CEO. In 2019, reports surfaced that Intel had selected him as a CEO candidate, but he stayed at Apple. The position went to Pat Gelsinger, who was somewhat forcibly ousted from Intel. Shortly after Srouji declined Intel, Apple chose the M1. Tim Cook erased Intel from Apple PCs based on the M1. Knowing the M1’s remarkable performance and Apple’s de-Intel strategy, it was unthinkable for Srouji to take the CEO position at Intel.