[Apple Shockwave]⑩ Intel Also Joins 'I Heosa' That Brought 366 Times Profit to Apple

The Fading x86 Era... Semiconductor Giant Partners with ARM for Foundry
After Smartphones, Is the ARM Era Coming to PCs?
ARM Revives Apple Amid Crisis

Editor's Note[Apple Shockwave] is a content series that examines 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 its founder, the late 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.

[Photo by apple·arm]

Intel is the company that introduced DRAM and central processing units (CPUs) to the world. While there are companies like HP, Intel was the most influential company in Silicon Valley. PCs and data center servers worldwide operated on chips made by Intel. Intel was naturally the world's number one semiconductor company. Although in a different field, Samsung Electronics also made relentless efforts to catch up with Intel. And the winner began to change. TSMC took the lead, and Samsung also surpassed Intel. The semiconductor fine process evolution battle, where Samsung and TSMC held the winning edge, seemed to be solidifying.

Recently, Intel announced a collaboration with UK-based ARM on the 1.8-nanometer process. Intel and ARM had been like oil and water. Their chip design starting points were vastly different. So what exactly happened that led to this cooperation?

The Declining x86 Era... Semiconductor Giant Teams Up with ARM for Foundry

The biggest topic in the semiconductor industry today is foundry (contract manufacturing). Samsung Electronics and Intel are comprehensive semiconductor companies that handle both design and production, and they are fighting desperately to catch up with TSMC, which specializes in foundry. While the competition between Samsung and TSMC is fierce, Intel’s situation is even more urgent, as it has fallen behind in the critical fine process technology for semiconductor production despite once being the world’s largest semiconductor company and pioneer.

Intel is investing $40 billion to build foundry lines in the United States and Germany. Intel is realizing the U.S. government's will to produce semiconductors domestically. The question is: what will Intel produce? Is Intel investing in such large-scale production facilities to manufacture its x86 CPUs? That is unlikely.

The era of x86 in the semiconductor market is waning. This has been an inevitable trend since the advent of smartphones, especially Apple’s iPhone. Until the large-scale PC replacement demand triggered by COVID-19, the PC industry had been in continuous decline.

The era of semiconductors consuming massive power to achieve higher performance is ending. The frontline of semiconductor competition now is low-power mobile system-on-chip (SoC). Apple leads this field. Qualcomm and Samsung Electronics are hot on its heels. The competition to produce semiconductors that consume less power at finer processes has become a minimum condition for survival.

One company that cannot be left out here is arguably at the very top of the semiconductor ecosystem. Without this company’s design (IP), semiconductor development and production are nearly impossible. That company is UK-based ARM.

Understanding the relationship between ARM and major semiconductor companies is the starting point to grasp the outline of the semiconductor ecosystem. Foundries that partnered with ARM have dominated the market.

TSMC became the first foundry to secure ARM9 and ARM10 IP and start production in 2001. Since then, TSMC has continued its cooperation with ARM. TSMC leads the world in ARM chip production, resulting in it holding half of the semiconductor foundry market.

Samsung’s system semiconductor business is also widely regarded as having taken off after starting cooperation with ARM. Samsung Electronics signed a license agreement with ARM around the same time as TSMC and began chip development. This proved to be a masterstroke. Samsung expanded its NAND flash memory supply contract for Apple iPod in 2007 to include application processors (AP) for the iPhone. Thus, Samsung’s 'S5L8900' began to 'pump' as the heart of the iPhone. Since then, Samsung has become an indispensable player in the mobile SoC market through its Exynos chips.

Even now, manufacturing logic semiconductors without an ARM license is difficult. Core design requires long periods and significant costs. Performance cannot be guaranteed. Moreover, companies would have to abandon the already established ARM foundry technology. This is why it is hard to find a company bold enough to make such a choice. Intel’s cooperation with ARM means it can handle semiconductor production for fabless companies like Apple, Nvidia, and Qualcomm, who currently lead the market.

Is the ARM Era Opening for PCs After Smartphones?

ARM’s market, once limited to mobile devices, is now targeting the PC market as well. Research firm Counterpoint recently predicted that the ARM-based laptop market will significantly increase by 2027. The current market share is 15%, but it is expected to rise to 25% in four years. Meanwhile, Intel’s share is expected to drop from 68% this year to 60% in 2027. AMD’s share is also expected to decrease from 16.7% to 14.4% during the same period. This means the market share lost by Intel will directly benefit ARM PCs.

Currently, 90% of the ARM PC market belongs to Apple. As the market grows, Apple’s gains will also increase. Counterpoint also predicted that Qualcomm will lead ARM PC growth in cooperation with Microsoft. This signals a major upheaval in the Windows laptop PC market as well.

The reason Intel is cooperating with ARM to manufacture chips designed by other companies is clear. Without producing ARM-designed chips, it is difficult to secure foundry customers. The moment Intel starts producing ARM chips, a new chapter in semiconductor history will surely begin.

ARM Revives Apple from the Brink of Collapse

ARM has already worked its magic by saving companies on the verge of death.

In the early 1990s, Apple developed its first mobile device, the Newton MessagePad, using chips designed by ARM. Today, ARM-based application processors (AP) dominate over 90% of the market, but ARM was once a startup.

At that time, compared to a large company like Apple, ARM’s predecessor, Acorn, was like a small corner store. During cooperation with Apple, Acorn separated its semiconductor development division to establish ARM. The initial shareholders were Apple and VLSI. Acorn contributed 12 employees, VLSI provided software, and Apple invested $3 million.

Apple’s initial stake in ARM was as high as 43%. This is a key factor defining the ongoing relationship between the two companies. The fact that Apple was one of ARM’s owners remains unchanged.

After becoming independent, ARM focused on designing low-power RISC SoCs and chips for embedded use. Although various semiconductors based on ARM designs were widely used, ARM lacked the status of an industry leader. Due to its low-power foundation, ARM’s performance was naturally inferior to Intel’s x86 series. ARM also needed a long period of patience before the mobile era fully blossomed.

Apple is the company that utilized ARM best. It might even be said that ARM saved Apple.

In 1997, after Steve Jobs returned to Apple, he settled lawsuits with Microsoft to secure a $150 million investment to save the near-bankrupt company. This amount was only enough to keep Apple alive for about 90 days, like an oxygen mask. More substantial funding was needed.

In 1998, ARM was listed on the UK stock exchange. After ARM’s Nasdaq listing, Jobs sold most of Apple’s ARM shares. A whopping $1.1 billion flowed into Apple’s accounts. The initial $3 million investment had multiplied 366 times. It was truly a blockbuster investment. This money was the lifeblood for Jobs and Apple. Subsequently, Jobs and Apple laid the foundation for a comeback with the iMac and iPod. Especially, the iPod was Apple’s first success using chips designed by ARM.