Category: The Daily Techpinion

The only thing that keeps surprising me about Apple is that people keep being surprised by their ability to keep delivering great quarterly revenues. But, of course, I know the point I’m making is more of an industry and investor one since most of Apple’s customers pay no attention to their earnings.

I have participated in countless investor debates on the sustainability of Apple’s business. While most investors have come around to the resiliency of Apple’s business and adjusted their models accordingly, there is still a general sustainable growth concern.

I find most fascinating, and perhaps the biggest reason I’m confident in Apple’s sustained growth is how the growth contributions can come from unexpected areas. One quarter maybe iPhone, one quarter it may be Mac and iPad, one quarter it may be services, one quarter it may be wearables, etc. While multiple of these lines of business can contribute to varying degrees, what has to be appreciated is all the revenue levers Apple has, which continually contribute to top-line growth.

While I appreciate the debate around how much more the iPhone can grow, being stuck on that point misses the fact that the rest of the Apple product and service ecosystem is underpenetrated compared to the iPhone. Meaning that not every iPhone owner has a Mac, iPad, Apple Watch, AirPods, or HomePod. Not every iPhone owner subscribes to Apple’s digital services. In that light, the growth story looks a lot more interesting and sustainable.

While the iPhone will continue to see a cadence of upgrades, generally over a four-year time frame, and be stable on an annual basis of shipments, Apple keeps sharing their active iPhone installed base keeps growing. This means they are continually adding new customers, even if relatively slowly compared to other products.

To give out some numbers for context, the iPhone global installed base is ~1 billion. Mac is ~110m. iPad is ~250m. Apple Watch is ~100m, and Airpods likely in that range as well. So compared to the iPhone installed base, every other hardware category from Apple is owned by less than 30% of their global customer base.

I’ve seen several global surveys on iPhone customers, which indicate that no single service has more than 30% penetration into the global iPhone customer base. iCloud appears to be the most subscribed to service at around 30% of iPhone customers subscribing to the storage service.

Now to the important takeaway in the Apple growth narrative. ~70% of Apple customers don’t own an additional piece of Apple hardware or subscribe to Apple’s digital services. While I do not expect 100% of all iPhone owners to own multiple pieces of Apple hardware or subscribe to all of Apple’s services, there is still a great deal of growth headroom for every offering from Apple beyond iPhone.

Once Apple acquires customers, they generally do not leave. Apple has loyalty, engagement, and brand equity on its side, and all those things factor into the continued reliance and strength in its business. Apple has a history of putting out great products, and as long as they continue to put out great products, there is no reason to be surprised by their performance in the marketplace.

An article posted by Nilay Patel on the Verge over the weekend seemed to get a fair bit of attention. I found it fascinating the industry buzz generated over Netbooks and why so many in the media seemed to be so excited about and fawned over these devices. Perhaps it was simply because they represented a shift away from the normal, boring, clamshell designs of notebooks relatively unchanged for years. But the reality was no one making these devices or participating in the ecosystem wanted this category to happen.

I mention this brief anecdote on Netbooks because there has been an ongoing debate about what Netbooks meant leading up to the iPad launch. If you recall, Steve Jobs mentioned Netbooks during the iPad launch and famously remarked that their problem was “they aren’t good at anything.” Jobs was spot on, but the Netbook brought broad enlightenment to the tech industry that traditional PCs were too complicated, but most consumers did not do much with their laptops and desktops. I was always personally hesitant to side with the debate that consumers didn’t care to do more interesting and computationally complex tasks. This is why I always found the iPad so interesting as a computing device.

iPad vs. Mac
As I watched yesterday’s event from Apple and looked at post-event commentary, it seems a popular angle was noting the line between the iPad and Mac was becoming more blurry now that iPad uses an M1. Adding an M1 to iPad was a big question mark for me, and one I was not convinced Apple would do to be honest. My gut wanted to keep some cleaner lines between Mac and iPad, and the processor was a good way to do that. It is not like the iPad running an Ax processor was underpowered. But upon further reflection, the addition of the M1 in iPad Pro makes me even more bullish on iPad.

When I think about drawing the lines between iPad and Mac, I come back to something I’ve said about the iPad for quite some time. The strength of the iPad is its versatility. A popular framing inside Apple for iPad is that it is a magic piece of glass. That magic allows it to be just about anything. If we refine the way to think about iPad, it is the most versatile portable computer Apple makes. This is the message I think Apple needs to lean into so consumers who value both versatility and portability can clearly gravitate toward iPad if they happen to be on the fence between a Mac and an iPad.

Another interesting element of iPad running an M1 is how it can leverage the growing Mac base of software optimize and created for M1 Macs. I agree with some of the commentaries I saw yesterday where people thought the M1 was overkill for the iPad unless the software ecosystem built up to take advantage of all the performance offered in the M1. But I think that software is filled by the many developers optimizing and creating new software for M1 Macs, which should translate nicely to iPad. If anything, this helps create a much cleaner line of separation between iPad Pro and iPad Air and iPad. At the top of end, Apple’s Pro computing lineup is Macs and iPad Pro.

I led off this note by talking about the Netbook and how some people draw comparisons the Netbook to the iPad and like to argue the iPad can’t replace your PC. That debate has been dead for a long-time, but some still like to remain stubborn. Adding the M1 to iPad should end the debate permanently and is absolutely a viable option if someone is looking to replace a laptop.

The Merging of iOS and macOS?
Another question that keeps coming up is if/when Apple will merge iOS and macOS. Something that each year feels like it’s taking baby steps in that direction. It does seem like this will happen someday as it has a lot of benefits for developers. What may end up happening is Apple develops an entirely new framework around app development that can more adequately adapt to the range of the devices they will make. iOS was built for a mobile world, and macOS was built for a stationary world of computing. Apple has not yet built a unified operating system from the ground up for all the categories they are in, including wearables, and at some point, AR/VR. What Apple seems to be building at the moment with their operating systems feels more like bridges than brand new continents. Perhaps an entirely new, more encompassing operating system is coming.

The more I think about this point, which I will leave for food for thought, is if the future of Apple’s computing devices is the M1, and eventually, they bring that architecture to iPhone and beyond? The M1 has a fundamentally different architecture than their A-series chips and one that is a bit more capable of scaling the clock frequency up or down depending on the device. If a more grand unification of platforms is on the horizon, I think it is logical not to have M and A chips but a highly flexible and scalable architecture capable of incredible computing power. Right now, that seems to be the design of the M1, so M1 iPhones may not be too far off?

I want to add a perspective to the idea of augmented reality (AR) that I don’t hear discussed much. When most people, who are familiar with augmented reality, talk about AR, the concept is rooted in overlaying the digital world with the physical. Common use cases surrounding the AR vision include things like getting directions and having more details revealed to you on your route. Shopping and having lists, product information, and more revealed to help you shop more efficiently. Communications where your emails, or texts, or contact information can show up right before your eyes. I could go on, but there is a fundamental point lost in these use cases that I feel will shape the category.

What is Augmentation?
First, we need to understand what the foundation will be for augmented reality. We can start with recognizing the definition of augmenting. Augment, in its verb form, means “to make (something) greater by adding to it.” If we start with this simple understanding of what augment means, we can then have a more productive conversation about the future of augmented reality. Just looking at the word, augmented reality, in definition, would mean to make reality greater by adding to it. The challenge I’ve run across with several vision pieces for augmented reality is how the use cases discussed make reality worse, not better.

I think this conversation about the future of computing and augmented computing needs to center on at this moment in time is what exactly we are trying to augment. More specifically, are we trying to augment (make it better by adding to it) the computer or the human? I would argue that if we flip our thinking from augmenting the computer, which is what most people think, to augmenting the human, we will get closer to a reality where computers make our lives better and not worse. And in that viewpoint, I’d argue that people will have far less tolerance for the inefficiencies most of our smartphones and PC experiences encompass.

Augmenting the Human
In case it isn’t clear, I have personally landed on the side of augmenting the human and not the computer. I mean that whatever form a computing device focused on augmentation takes, its sole purpose should be to make the human’s capabilities better. For example, I believe health and fitness wearables are a form of augmented computing. If you use one of these devices and use the Apple Watch, you realize it increases my health potential in various ways. For me, Apple Watch increases my fitness and overall health by monitoring many vitals (with more to come in future versions) and bringing a computational element to health that is not achievable without it. By definition, Apple Watch is augmenting my health.

Another area of great interest to me is devices we have in our ears. From my perspective, a simple hearing aid gives us a basis for augmented hearing. Hearing aids enhance hearing for those who need them, but there are applications for this for everyone. For the last six months, I’ve been trying the IQBuds Max from Nuheara and it has been truly enlightening for me under the premise of augmented hearing.

These earbuds are not just noise-canceling music devices. Their true value is the sound-enhancing features, particularly around voices. They have an active microphone that listens to outside sounds and can eliminate white noise and isolate sound to hear everything better, even if you have good hearing in general. The software includes different modes that can isolate sounds in certain directions as well as in real-time.

My experience with the Nuheara IQBuds Max has shown me a vision for what an ear-worn computer could do in augmenting my hearing. It is not just helping me hear noises or conversations better, but also digitally managing the sound levels, helping me isolate sounds that are softer by boosting them or softening sounds that are too loud all in real-time. These, not just active noise canceling but active noise listening earbuds, have shaped my perspective on augmented computing more than any other product I’ve tried up to this point. They are the definition of augmenting, to make better, my hearing by using a microcomputer with AI that sits in my ears.

Lastly, let’s talk about augmented vision. If we use my basis that the primary way to think about augmented computing is computers than enhance the human’s capabilities, then vision becomes quite clear, literally. Yes, a computer I wear over my eyes will bring elements of our experiences with computers today. Still, as I said, our tolerance for inefficiencies will go up dramatically when it comes to our eyes. I’ve come up with a saying that I’m fond of is while the wrist and ears are prime real estate for computing devices, the eyes are sacred ground.

In 2019, I did a project for a company working on an augmented reality product. We brought consumers in and tested a wide range of current AR solutions. From this research, it became abundantly clear to me the eyes will be an extremely difficult place to put computers. Rather, the eyes will be an extremely difficult place to bring the current smartphone or PC-centric thinking of computing. The core challenge is nearly every use case that exists today distracts from our vision instead of enhancing it. Showing me a text message gets in the way of my vision. Even how directions are shown will need to be re-imagined as not to obstruct or getting in the way of what I see in the world. This is why I’m convinced this will be the most difficult place to bring a computer over my eyes and why we are still a long way off from any true mainstream smart glasses solution.

Whatever ends up becoming mainstream, that is, a computer for my eyes will have to, at its basic level, augment my vision in useful ways. Sight is precious, and humans know this, so enhancing our sight will be one of the most useful features of smart glasses. Letting me see farther, closer, in the dark or low-light, are all core augmented vision use cases. How the computational/digital world overlays will need to recognize sight is precious, less is more, and focus on truly adding to the visual experience, not detracting from it.

Ultimately, augmented computing by way of devices we wear, that give us “superhuman” capabilities, could be the purest manifestation of Steve Jobs’s perspective that computers are bicycles for our mind. The observation that Jobs makes is that what humans create is added to our efficiency as a species by way of computers. Augmented computing will enhance our capabilities as a species and take this concept of computers, making us more efficient in all we do to a new level.

It’s a great vision, but also one that is extremely difficult and still very far off.

When Apple introduced the Apple Watch, they initially positioned it as jewelry that also told time and a few health features.

However, over the last three years, Apple has added many health and fitness features to the Apple Watch, most recently adding ECG and Blood Oxygen monitoring.

Since Apple introduced the Apple Watch and made health monitoring a reason for it to exist, I have wanted two other distinct health features.

The first is related to blood sugar readings for people with diabetes. I have been a diabetic for over 25 years, and at least three times I day, I had to prick my finger to see what my blood sugar readings were and adjust my insulin dose accordingly.

About five years ago, I began using the Dexcom Continuous Glucose monitor to monitor my blood sugars electronically and do away with the pinpricks.

The Dexcom Glucose monitor consists of a sensor patch that I place on my stomach with two tiny prongs that get inserted into my belly that analyzes the interstitial fluids to read my blood sugars. That sensor is connected to a Bluetooth transmitter that then sends that reading to my iPhone, and through the Dexcom app on my Apple Watch, I can see what my blood sugar readings are 24/7.

Three years ago, Apple hinted that this type of blood sugar reading might be able to be done via some special light sensors in an Apple Watch someday, and I admit that I got excited about this prospect. Although my medical insurance covers 50% of the Dexcom product cost, I will pay about $1500 a year for my share of the Dexcom bill.

At CES, a Japanese startup, Quantum Operation, put a glucometer into a watch. Although this was a prototype if indeed Quantum Operation has solved how-to but a blood sugar sensor that uses light to get blood sugar readings, this would be a breakthrough.

Three years later, Apple still has not found a way to add this feature to the Apple watch, although I have seen recent reports that this feature could be in the new Apple Watch later this year.

Samsung is also planning to add blood sugar testing light sensors to their watch shortly.

This would be a promising development that suggests a light sensor-based blood sugar solution could be built into smartwatches in the future.

The second feature that I wanted in the Apple Watch has been for it to read my blood pressure. I had a triple bypass in 2012 and need to take my blood pressure daily. Some attempts to do this with smartwatch bands make the smartwatch bulky since it uses the band like a BP cuff to expand like traditional blood pressure readings you get in a dedicated blood pressure monitor.

At CES, Biospectal showed off its Biospectal OptiBP, which lets a person use a smartphone camera to measure blood pressure. This technology was introduced last fall, and Forbes did a great piece on this product launch of what I consider a highly important health monitoring technology.

If you have been to any doctor, you know that taking your blood pressure is one of the first things they do in any visit. This is because it can tell them a great deal about a person’s heart health at the center of many medical conditions.

This company used CES 2021 to highlight it. The company said a recent independent large-scale clinical study from Scientific Reports in Nature validated Biospectal’s OptiBP ability to measure blood pressure with the same degree of accuracy as the traditional blood pressure cuff. It uses the smartphone’s built-in optical camera lens to record and measure a user’s blood flow at the fingertip in half the time it takes with a traditional cuff (about 20 seconds). I could not find the minimum smartphone camera requirements to allow for this type of BP test. However, I suspect more recent smartphone cameras could be used for this. OptiBP’s proprietary algorithm and optical signal capture methods turn light information into blood pressure values by optically measuring blood flow through the skin.

The Biospectal OptiBP for Android app is in public beta and available now in the US, UK, France, Germany, Spain, and Switzerland. Biospectal OptiBP for the iOS app is planned for release later this year. The company said that interested participants could register for the public beta or sign up to be notified once Biospectal OptiBP becomes available in their country.

These are breakthrough developments that bode well for wearable health monitors and gives me hope that sometime soon, Apple, Samsung, and others may be able to add these two new health-monitoring features to eventual smartwatches and even fitness trackers.

Helping Intel stay in the semiconductor manufacturing game should be among one of the highest priorities for all US-based technology companies. While TSMC is the leader in manufacturing process technology, they remain a geo-political risk should China decide to enforce its will on the region. Samsung is not far behind, but being a Korean company, again, future politics guarantee no safe bets. Having a leading semiconductor company founded and based in the US is incredibly strategic given how critical semiconductors are to our digital future. Apple may be one of the only companies that can help Intel right the ship.

Why Intel is in this Position
It took a combination of slowing CapEx spends for leading-edge fabs and technical hurdles transitioning from one process node to the next for Intel to now be two process nodes behind TSMC and Samsung. As I wrote for subscribers last week, there are reasons for Intel to hold out hope internally that their process and their architecture are good enough to keep their current course. But when you analyze how Intel got here, it hangs heavily on the volume of premium and cutting edge semiconductors moving to Arm and not x86.

At its best, the x86 market is a 330-350m a year in total shipments for client and server CPUs. Arguably, only a small fraction of that market sells at premium price points necessary to justify the investment in cutting edge process technology. Once upon a time, Intel was increasing their CapEx annually and roughly every 18-24 months, building out a new foundry for cutting edge process. As the PC market matured and refresh rates dramatically slowed, it made it harder for Intel to justify the CapEx for leading-edge nodes on a two-year cycle, and thus they moved more to a 3.5 to a four-year cycle.

The story is a bit different with Arm. When you see the economics of smartphones and the sheer volume of annual smartphone shipments ~1.2 billion, with premium smartphone sales being ~300-350 million (compared to 60-70m for PCs), it is easier to see how this market was large enough and economically stable enough for TSMC to keep investing in leading-edge process technology so aggressively. But, while few may want to admit it, Apple is a big reason TSMC is able to confidently keep investing in cutting edge process technology. Because the bottom line is, you need to have a customer(i.e., product demand) to justify the investment. Apple is a big enough customer of premium smartphone chips and thus worth it for TSMC. Intel alone is no longer a big enough customer of premium PC and server chips, and thus their ability to spend on leading-edge fabs suffered.

The hard truth for Intel is the x86 market alone is not big enough for Intel to justify the CapEx for leading-edge foundries. And that challenge is compounded by the fact that Apple was Intel’s largest customer for premium x86 chipsets, and now Apple has moved to Arm, and x86 chips are not Apple’s future. If Intel continues in the foundry business, they have no choice but to make chips for other customers, AND they need to be a full Arm foundry. Something they attempted and failed at for a variety of reasons. There is where a joint venture between Apple and Intel could be strategically beneficial to both companies.

How Apple Helped TSMC Achieve Process Leadership
I don’t want to dismiss the technological achievement of TSMC by being the first foundry to 7nm, 5nm, and likely the first to 3nm. Anyone who knows transistor designs knows how hard it is, at a micro level, to keep shrinking silicon. However, Apple helped make it easier for TSMC to justify the RND and CapEx costs and to continually invest in leading-edge process technology by being their largest customer, always committing to the latest node. I am not convinced TSMC would have the clear lead they do in process tech without Apple.

As a customer of supply chain components, Apple likes to buy in advance, in bulk, and write big checks to secure pricing and inventory. This played a role in TSMCs confidence to keep striving and investing in cutting edge foundries. While there is no official joint venture between Apple and TSMC at a foundry level, it is a deep partnership. TSMC has committed space, equipment, and supply to Apple. Even if not a JV or partnership on paper, it is very close to that in reality. But, TSMC is the only game in town for Apple to build their A series and M series chips on the leading-edge process. And this is where the real risk comes in and why Apple may want to have Intel as a plan B.

TSMC and Geopolitics
There is no secret among semiconductor insiders that TSMC, based in Taiwan, is a strategic technology asset for both the US and China. It is also no secret, China is spending large sums of dollars trying to develop semiconductor independence, and a lot of that strategy hangs on their own local foundry, SMIC.

If you follow the news, there are worries of increased tension between China and Taiwan. Taiwan is independently governed. But China considers it part of its territory. While a lot of my logic is game theory at this point, should China consider TSMC essential to their plans for semiconductor independence, which would also grant them semiconductor leadership, it is not out of the realm of possibility that China could officially reclaim the region. Nearly every technology executive dealing with the supply chain I know has been worried about this and I’m sure it is on Tim Cook’s radar as well given his deep knowledge of the Asian supply chain.

In that scenario, the risk for Apple and the many other companies who manufacture their semiconductors with TSMC is China either prioritizing their needs at TSMC over others or cutting off supply as a whole. Again, not a great business, but not out of the realm of possibility given how central semiconductors are to our digital future.

Samsung is another option as Samsung Semiconductors is rolling out their 5nm solution, and it appears to be quite good. Samsung Semiconductors also makes chips in the US at a foundry based on US soil, and Samsung as a backup is a viable option. Unless, of course, semiconductors’ importance does indeed become a national strategic asset for the future, and thus Korea decides to pull Samsung back locally. Even if one doesn’t buy Samsung is geopolitical risk, should the worst-case scenario happen with TSMC, Samsung would be in a position to be the only leading-edge fab companies like Apple, Qualcomm, Nvidia, AMD, could use and could create price hikes and supply constraints.

Back to Intel
What I’m laying out is a worst-case scenario, but it is a plausible scenario. Intel is the only future-forward guarantee to a foundry from the perspective of US-based companies making computing devices. And because Apple is the largest purchaser of premium semiconductors on the cutting-edge process, Apple is the best positioned to do a joint venture with Intel to help them invest in future nodes and secure space in their foundries for all their future Arm-based products. This would position Apple to make their Arm-based chips on US soil with a US company.

A move like this would be highly strategic and beneficial for both Apple and Intel, and the US. Of course, Apple could be a part of a JV between TSMC and Intel where TSMC 5 or 3nm chips are made for Apple and Intel foundries, but there is still a risk and no guarantee Apple would have continued access to TSMC technology should China be aggressive. As I said, Intel is the only guarantee in what may become an actual chip war between nations.

In the late 1990s, I had the privilege of working with the State of Hawaii to help push the State to accelerate its rollout of high-speed internet connections for their schools.

Although I was born and grew up in Silicon Valley, many of the Filipino side of my family all lived in Hawaii. I was concerned about this State’s understanding of how important I felt the Internet would be for their schools.

I admit my concern was a bit selfish as I had many nieces and nephews in the Hawaii school system. I wanted them to have the same accessibility to high-speed Internet connections that had already become prevalent in California and other states on the mainland by 2000.

I worked directly with the Hawaii Governor at that time, Benjamin Cayetano, to help him and the Hawaii legislature understand the importance of the Internet to its schools and businesses. To his credit, Governor Cayetano moved swiftly to expand Internet connections to all of Hawaii’s schools and became a champion of various high tech initiatives to help the state expand its various tech programs.

An interesting side note to this is that a high-tech exec I know, who grew up on Lanai, knew that the schools there did not have Internet connections, let alone computers for their students. He personally bought computers for a computer lab in the one school Lanai has so that the kids there could have the benefits of their counterparts on the other islands.

Since that time, all States in the US have expanded their high-end internet networks to almost all of their schools and it has become a backbone technology for all education systems in the US and around the world.

However, the coronavirus has shown how unequal access to technology itself divides us. And the implementation of telecommuting has made these issues even worse and disproportionately harm Black and Hispanic Americans.

When people work from home or are forced to home school, they typically need access to a computer, internet speedy enough to handle video calls, and space to work without distractions — and there’s a clear racial divide when it comes to having these things.

Axios recently pointed out these disparities and listed the following data points-

• Per a 2019 report from Pew Research Center, 58% of Black adults and 57% of Hispanic adults have a laptop or desktop computer, compared with 82% of white adults.
• 66% of Black adults and 61% of Hispanic adults have broadband access at home. Among white adults, the share is 79%.
• According to a recent survey from WayUp, Black and Hispanic job applicants are 145% more likely than their white counterparts to be concerned about their ability to do a job remotely.

Solving this type of disparity needs to become a priority sooner than later in the current presidential administration. I realize they have higher priorities to deal with immediately related to the Covid-19 Pandemic, the economy, and other areas that are needed to get our nation back on track.

But making sure that all Americans have high-speed access to the Internet as well as the types of devices and tools needed to help them learn and work, regardless of race or creed, also needs serious attention.

From an industry standpoint, the prices of laptops and especially Chromebooks making it more feasible for even low-income families to have a least one device in the home that can connect to the Internet.

However, here in Silicon Valley, perhaps the most tech-literate area in the US, I have been told by at least two friends that some students in East San Jose’s less affluential region do not have computers of their own unless their school district supplies them.

We are in a digital age that demands connectivity and devices that connect to the Internet and equality mean that the US government, private agencies, and even corporate support need to take this challenge seriously and make sure all workers, as well as students, have equal chances for success.

To the casual observer, the excitement around Apple Silicon is concentrated around the specific benefits to Apple and the competitive advantage awarded to Apple thanks to their efforts in custom silicon. There are, however, much wider industry implications.

I have been extremely bullish on Apple’s custom silicon efforts since before Apple silicon began showing up in iPhones. My analysis at Apple’s time acquiring PA Semiconductor stated the writing was on the wall for deeper vertical integration by Apple into more of their products. I vividly recall being at Intel not weeks after Apple’s acquisition of PA Semiconductor. The consensus was quickly established that Apple would make custom silicon a cornerstone of their differentiation and competitive advantage.

Since Apple has now proven they are a force to be reckoned with when it comes to custom silicon, a trend I’ve long predicted is about to accelerate.

Competing in the Race Requires Components Built In-House
A great analogy came to me as I was watching AMD’s CES keynote. AMD CEO Lisa Su invited to the stage, virtually, Formula One race car driver Lewis Hamilton. Hamilton’s presence on stage was mostly to talk about his love of gaming and how AMD helps push the bar in PC and console gaming. While trying to affirm AMD as an innovative technology company, he also made a fascinating point by remarking on how his own industry consists of highly customized components. He stated that all Formula One cars, which extend to all professional race cars, consist largely of components all built in house. The obvious reason for this is a competitive advantage. Every race car driver wants an edge above the competition, and the industry itself has established the only way to do that is with highly customized parts, not stock ones.

To establish this analogy more clearly to the tech industry, Apple products are more like Formula One race cars, which compete against a field of competitors using off the shelf components. As Apple goes deeper into in-house parts for their products, it will inevitably cause others to follow whether they compete with Apple or not.

This is the trend that will accelerate that I mentioned above. While it will be harder for most tech companies to go as deep as Apple in verticalization, I anticipate a much more widespread move to customization.

In an article last year, I dug into this broad semiconductor trend where I highlighted the importance of specific purpose chips over general-purpose ones. The computer industry was built largely on general-purpose silicon. The increased need to differentiate and compete on different planes drives the need away from general-purpose silicon and more to specific purpose chips that are used uniquely by product companies.

I made the point that I don’t think other tech companies will go as deep as Apple in semiconductor customization. Still, I think companies will be at a strategic disadvantage if they don’t include some custom or specialized chips that enable some unique product advantages.

Examples of this trend starting to accelerate have been popping up more often. Microsoft has worked closely with Qualcomm and AMD to offer specific customization to the chipsets that run in certain Surface products. The goal of that work was to differentiate these devices from the pack. Microsoft has even been rumored to be looking more deeply at designing, or co-designing, their own Arm processors, which could have both server and client impact. For many generations of Xbox, Microsoft has created some custom components and co-processors for years as well.

Amazon and Google have become more aggressive in custom/specialized processors to differentiate their cloud platforms. Amazon with its Gravitron processors, and Google with Tensorflow. Both key initiatives to help them compete more uniquely with specialized components and set themselves apart from competitors who use generic parts.

Qualcomm made some news recently that emphasizes this trend when they acquired Nuvia last week. Ex-Apple silicon engineers founded Nuvia, and they created a custom Arm architecture they intended to use for the server market. With their Kryo architecture, Qualcomm used a semi-custom design from Arm but mostly using a more generic Arm IP. Qualcomm recognized their ability to compete depends on more deep customization of technology at every SoC level. This Nuvia acquisition puts them back on the path to more deeply customized semiconductor offerings.

Years ago, the belief that more custom or specialized components were not needed because all computing would be in the cloud someday had never manifested and proven to be a much far off future even if it happens. What has become exceedingly clear is that differentiation at the software level is no longer enough for the tech sector’s biggest competitors. The idea of a “full-stack” company must now extend into components as well.

The race car analogy could not be more apt for the tech industry as the competitive environment increases in every market. The simple truth is companies will need to invest more in specialized components because the nature of competition will demand it.

The bottom line is the more companies create “in-house” technology that extends down into components, the better their chances at competing. The more companies rely on generic solutions, the more they run the risk of falling behind.

Early in 2020, TSMC announced that they would build a $12 billion Fab in Arizona. In December, TSMC purchased the land it will be built on for $89 million.

I admit that I am still in the camp that believes broad manufacturing coming back to the US is a pipe-dream. However, I do see some specialized manufacturing in the US is feasible, and TSMC’s Fab project is a good example. While the actual push to build this Fab in Arizona is ripe with political overtones, it may turn out to be one of the better strategic moves for the US as it deals with multiple threats from China in the future.

The biggest threat I see on the horizon is China’s desire to nationalize Taiwan and bring it back under Chinese control. As I have written here in the past, I have spoken to top execs in Taiwan, and they are on high alert over the potential of China making a concentrated move to secure Taiwan and make sure it is part of China again.

This Dispute between China and Taiwan has been going on for decades ever since Taiwan broke away from China’s political stranglehold in 1949-1950. Under Taiwan’s leadership, Taiwan has developed a strong economy and is the home of the top tech manufacturers like Foxconn, Quanta, Compal, and TSMC, among others. In 1977, the US fundamentally agreed to back Taiwan and help them keep China at bay.

But given China’s recent moves in Hong Kong, Taiwan’s political and business leaders are deeply concerned that China will make some type of move towards trying to bring Taiwan back under Chinese rule as early as 2021.

One of the Taiwanese business leader’s concerns is if China is successful in nationalizing Taiwan, they could exert more control of their businesses. And it seems that one of the bigger prizes that could come out of the Chinese rule of Taiwan would be to get control of TSMC., or at the very least try and legislate who TSMC could make products for in the future.

One Taiwanese tech contact I spoke with at the end of last year told me that China’s national strategy to have products made in China and used especially in Chinese goods could be one other objective besides the political goal to unite Taiwan under the Chinese flag. This contact speculated that China could dictate where chips can be used and make Chinese products the priority.

This has huge ramifications for many US companies who use TSMC to make their processors. AMD, Apple, Samsung, and many others rely on TSMC for their chips. That is why putting a TSMC Fab on US soil is not only good for the US but a strategic one. It could be critical for keeping the flow of custom processors to US and European companies and keep TSMC’s growth moving forward.

I realize that the building of this Arizona Fab will only start sometime in 2021 and could take up to three years to build. In the meantime, the stakes in the US-China relationship are very high. Taiwan and its ties to the global tech supply chain are critical for the success of our tech industry. Allowing China to control this global supply chain through Taiwan could pose huge problems for tech companies in the future.

Taiwan and its ties to the global tech supply are critical for the success of our tech industry. Allowing China to control this global supply chain through Taiwan could pose tech companies’ problems in the future. There is another important point we need to consider a new Fab being constructed now.
The demand for processors for all industries is growing exponentially, and we are already seeing shortages impacting the Auto industry.

Engadget noted this week that ” Ford and Nissan are scaling back production in response to semiconductor shortages. Ford is idling an SUV factory in Kentucky this week, moving up downtime previously scheduled for later in 2021. Nissan, meanwhile, is reducing output at one of its plants in Japan.
Other carmakers may face trouble as well. Volkswagen said in December that it was altering production in China, Europe, and North America due to the shortage. Given the increased demand for semiconductors, it is good that another new fab is being constructed to help meet this growing need.
And it is even better, as well as strategic, that it is being built in the US.

This global hot spot will be one of the biggest issues to follow in 2021.