Apple should think about building a wafer fab. I'm not joking or merely trying to be provocative. I'd even bet that Steve Jobs has flirted with the idea.
Apple should consider—and I mean just consider—building its own fab to make the A4 (the engine for the iPad and iPhone) and follow-on processors. And at some point, an Apple-owned fab might be a necessary evil.
Fabs, of course, are expensive, and for years Apple has done fine without one. As a traditional OEM, Apple bought components, integrated them into systems and sold the finished products, content to let its chip suppliers shoulder the fab burden. Why mess with the formula?
Because Apple, with the iPhone and iPad, has become more systems house than traditional OEM. Like Cisco and IBM, Apple now designs its own complex ASICs. It even acquired IC design houses P.A. Semi and Intrinsity to bolster its ASIC design expertise.
What's more, Apple and its key foundry partner, Samsung Electronics, are on a collision course in several end-user markets. But as a foundry, Samsung gives Apple a sweet deal for ARM-based processors and NAND flash supply. That makes it hard to walk away. There's no guarantee another foundry vendor would offer preferential treatment or pricing.
So the Apple-Samsung foundry arrangement isn't likely to dissolve anytime soon. But ego could be the third wheel in this relationship.
I believe Jobs wants more control of the supply (and perhaps manufacturing) chain to buffer his company from the chip industry's boom and bust cycles. In boom times, for example, foundries struggle to keep up with demand, and OEM customers are at a disadvantage—a position from which strong egos don't like to negotiate.
Meanwhile, Samsung and Apple are competitors in the smartphone, PC and tablet PC markets. Today that doesn't worry Apple much, because the companies are worlds apart in branding. Apple’s brands are known the world over and are synonymous with cool. Samsung, too, builds solid, interesting products. But can you rattle off the names of its phone models and TV lines? Didn't think so.
Apple and Samsung's existing arrangement suggests a relationship in flux. Apple buys Samsung’s ARM-based MP3 chip set for the iPod. For the iPad and iPhone, however, Apple designs the ARM-based ASICs, and Samsung makes them on a foundry basis.
Apple today seems to call some of the shots at Samsung. The South Korean company recently announced a $3.5 billion fab expansion plan in Austin, Texas. Most of the spending will be funneled into Samsung’s logic business, and much of that will go toward serving Apple requirements, according to my sources.
Samsung’s logic business is currently centered in its home country, a geopolitical hot spot. I'd venture a guess that North Korea's recent saber rattling in the direction of its southern rival made Jobs uncomfortable, and he nudged Samsung to make the logic-capacity investment in Austin.
Still, push might one day come to shove. As Samsung accelerates its smartphone activity, enters the tablet market and reenters the PC market, its identity as a competitor to Apple could weigh more heavily on the pair's foundry relationship, and Jobs would want to exert more control over the A4's supply.
I don’t expect to see Apple build a megafab for NAND flash; that kind of investment, given the dictates of Moore's Law, would be unsustainable. But I could see Apple building a traditional, smaller-scale logic fab to gain more control over the A4 and its follow-ons.
Logic fabs can cost $4 billion to maybe $10 billion to build out, depending on the tool sets, but Apple could swing the funding. I am sure Texas would pick up some of the tab for a new fab on its soil. The same goes for New York.
In an age when real men go fabless, I concede it's an unconventional idea. You might think it's absurd. But an Apple A4 fab today could keep the iProduct franchise in hay—and Samsung at bay.