[Apple Shockwave]⑨ Tim Cook Announces Airstrike with New Bomber 'M3'

Apple Attempts to Widen Gap with Greatly Improved M3 Chip
Demand Slump Leads to Production Cut for M2
Qualcomm Plans Counterattack with Apple-Origin Nubia-Developed Chip

[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder, why semiconductors from Apple? Apple is no longer just a company that makes smartphones and computers. After long efforts starting from the late founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and large-scale semiconductor production line investments, 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.

PC sales, which had increased immediately after the COVID-19 outbreak, are now sluggish. The semiconductor industry is going through a harsh winter. As computer demand decreases, semiconductor companies' operating results for CPUs, memory, and others inevitably fall. Nevertheless, the emergence of new chips always excites potential buyers.

To overcome the unusually cold 'semiconductor winter,' a decisive 'one shot' is needed more than ever.

Apple, 'Let it slide last year'?prepares a decisive new weapon

Last March, ahead of the new school year, Apple Stores were bustling with people trying to buy laptops and tablets with student discounts. Apple PCs, which are like 'Starbucks' tickets, are no longer unfamiliar to the new MZ generation college freshmen. Of course, the newly acquired Apple laptops will eventually become outdated. That time is not far off.

Apple Silicon is sharpening its edge dulled last year and is poised to sprint this year. Apple caused a significant stir in the semiconductor and IT industries with the PC system-on-chip (SoC) 'M1' announced in 2020. Apple introduced the M2 chip last year, signaling annual upgrades to the M series, and the appearance of the M3 this year is confirmed.

Both Apple and consumers found the M2's progress compared to the M1 somewhat disappointing. This is attributed less to Apple's design capabilities and more to the lack of significant changes in the manufacturing process by TSMC, the production company. Intel once employed a 'tick-tock' strategy (not related to the Chinese video company), meaning process improvements one year and design changes the next. However, as the limits of fine processes approached, it became difficult to maintain this strategy.

Thanks to Taiwan's TSMC, Apple led competitors with the M1 produced using the 5nm process, but the problem came afterward. The M2 introduced last year did not show a remarkable performance improvement over the M1. Consumers expected dramatic changes as experienced with the M1 but were held back by a lack of innovation in the semiconductor industry.

Although not as severe as Samsung's Galaxy S22 GOS (Game Optimizing Service) incident, the heating issue in the 'MacBook Air' using the M2 was also a disappointment. It was enough to affect potential buyers who anticipated the newly designed M2 MacBook Air.

This situation is also reflected in the results. Apple’s Mac computer-related revenue in Q4 last year (September to December) was only $7.74 billion, a 28.66% decrease compared to the same period the previous year. This decline is notably larger than the iPhone's 8.17% drop. Apple also forecasted a roughly 5% decrease in Q1 earnings to be announced in May.

Cook reduces M2 production, prepares M3 counterattack

The sluggish M2 PC sales are largely attributed to the base effect of the sharp increase in M1 PC sales the previous year. According to Counterpoint Research, Apple’s PC sales in Q4 last year fell 22.8% year-over-year.

A similar situation is believed to have continued in Q1. Market research firm IDC reported that Apple PC shipments dropped by 40% in Q1. This is notably worse than competitors, who saw declines in the 20% range. Meanwhile, Gartner provided a somewhat differing analysis, stating Apple Mac PC shipments fell 34% during the same period. Despite the numerical differences, both agencies agree on the downward trend in Apple PC sales.

There are also observations that Apple has already taken measures considering this situation. The electronics industry media 'The Elec' recently cited a semiconductor packaging company source reporting that Apple halted M2 chip production for two months from January to February. Production resumed in March but orders were halved compared to before. Although this has not been confirmed by Apple, the reason for production cuts is easy to infer.

Apple-designed semiconductors are used only by Apple. They are not general-purpose semiconductors and cannot be sold to other companies. Samsung Electronics has no reason to engage in a 'chicken game' by producing memory semiconductors at a loss to maintain market share. Naturally, production is reduced when demand decreases or discontinuation is expected.

The M2 production halt and reduction are also linked to Apple CEO Tim Cook. It could be Cook’s 'strategy' in preparation for the next move. Cook has led Apple with outstanding achievements in process and inventory management. Shortly after joining Apple, he reduced vast inventories to just two days' worth. He also demonstrated skill in not recognizing parts in accounting books until Apple products were manufactured. For Cook, 'inventory' is a taboo word.

The spreading performance results suggesting that the M3 to be released this year will outperform the M2 are also related to the reduction in M2 production. Once the M3 appears, PCs using the M2 will become outdated. Older PCs will serve as low-cost models. Apple has already lowered the price of the MacBook Air using the M1 to below $1,000 in the U.S. (some stores even offer it in the $700 range) to respond to market slowdown.

What kind of performance will the M3 show? The performance test results of the M3 revealed by overseas tipster Vadim Yuryev immediately caught attention. The M3, manufactured using TSMC's 3nm process, showed superiority over the M2 Pro and Max made with the 5nm process.

The M3’s Geekbench 6 single-core test score was 3,472 points, 24% faster than the high-end M2 Max. Although the M3 was about 6% slower in the multi-core test, considering that the M3 has 8 cores in its 'brain' compared to the M2 Max’s 12 cores, a significant performance improvement can be expected.

It is uncertain whether the actual chip will deliver this level of performance. Nevertheless, even performance close to this, combined with the fact that the M3 will mainly be used in the most affordable MacBook Air, suggests the cost-effectiveness will soar.

Qualcomm, 'Delivers a blow to Apple'

What about the chips chasing Apple? The promising low-power SoC contender is Qualcomm. Qualcomm acquired Nuvia, whose engineers designed the A-series chips, and is directly confronting Apple. Qualcomm plans to compete against iPads and MacBooks with the 'Snapdragon 8cx Gen 4,' which uses Nuvia’s ARM-based 'Oryon' core. This could mark the beginning of serious ARM-based PC competition.

Recently revealed on Geekbench, the Snapdragon 8cx Gen 4 specs include 12 cores and a clock speed of 2.38 GHz. Specific performance details are not yet known. However, if the Snapdragon 8cx Gen 4 uses Nuvia’s 'Oryon' core, many analysts believe it can rival Apple’s M series.

Review outlet 'Tom's Hardware' predicted that the Snapdragon 8cx Gen 4 with Nuvia’s core could emerge as a strong competitor to Apple’s M series but would have a greater impact on the Windows ecosystem. This is because it represents the arrival of a proper low-power, high-performance mobile CPU for Windows, a market long dominated by Intel and AMD’s x86 CPUs.

The MacBook using the M3 is expected to be released in the second half of the year. There is a high possibility of 13-inch and 15-inch M3 MacBook Air models appearing. It is anticipated to be unveiled at the Apple Worldwide Developers Conference (WWDC) held on June 5. The Snapdragon 8cx Gen 4 chip is expected to be announced later this year, with related products possibly launching next year.