Intel Retires Tick-Tock, Apple’s Focus on the Cloud, The Fallacy of Apple Revolutionary

Intel Retires Tick-Tock

An entirely predictable news item came out yesterday. Intel plans to shift away from their Tick-Tock method and extend the life of current generation process technology to what is likely to be three generation of cores. I take no issue with this and don’t see it as bad for Intel in the slightest or that it gives their competition any advantage on process technology. What this does showcase, however, is the fascinating dynamic being hit by everyone in the component landscape. Hardware is commoditizing across the board in consumer tech and when that happens, it becomes harder and harder to sell premium and leading edge innovation parts to customers that want to sell devices at scale and rock bottom prices. This dynamic is a factor among the many reasons why Moore’s Law is likely at its end. Not because we can’t get to new process technology nodes, such as 10nm which is next on the list, but because it is harder to do so economically. Which means that for Intel, TSMC, Samsung, and Global Foundries to find the investment worth spending billions of dollars to get to the next node, they need to know they have customers who will pay the premium for it. And that list is now exceptionally short. In fact, it is largely limited to one name–Apple.

Intel, and I expect a great many other foundries to do the same, will need to extend the life of 14nm to three generations of products just so they can recoup the investment it took to get them there. The PC industry decline and the relatively small chipset volume, but high margins on servers, is not enough to fill their fabs and recoup their investment to get to 14nm so they will extend its life to justify their costs. This is the new reality in the world of semiconductors.

Intel will surely get to 10nm as will Samsung, and TSMC in a roundabout way, but they will have to lengthen the life to possibly even four generations to recoup their billions of dollars it cost in CapEx and R&D. All of you have noted we have been writing quite a bit about VR these days and this dynamic I just outlined is a key part of the reason. The component industry has a reason to pursue premium innovation again. There are some significantly difficult technical problems to solve to get VR/AR to go mainstream and we need these companies pushing the envelope in performance, sensors, battery life, and more. Unfortunately, the smartphone, PC, tablet, and even the automotive industry does not have the high-end component scale worth chasing after with new high-end silicon. VR and AR, on the other hand, are worth it and this is why the whole of the component industry is excited about VR.

Apple’s Focus on the Cloud

The Information had an interesting story regarding Apple and Cloud infrastructure. The crux of the article goes into the challenges Apple has had with their cloud solution, essentially the major issue many point out regarding Apple overall as being weak at cloud services, but also the deals and custom designing of server hardware which Apple is exploring to solve this issue. This bit in particular was of interest regarding “Project McQueen”, the code name for this custom hardware project.

Apple is also working on projects to design its own servers. At least part of the driver for this is to ensure that the servers are secure. Apple has long suspected that servers it ordered from the traditional supply chain were intercepted during shipping, with additional chips and firmware added to them by unknown third parties in order to make them vulnerable to infiltration, according to a person familiar with the matter. At one point, Apple even assigned people to take photographs of motherboards and annotate the function of each chip, explaining why it was supposed to be there. Building its own servers with motherboards it designed would be the most surefire way for Apple to prevent unauthorized snooping via extra chips.

I jokingly tweeted a few weeks ago asking how long it would be before Apple started designing its own server chips. While tongue-and-cheek, I had a certain tone of seriousness due to the optimization which could be done if they had custom hardware. The word that kept coming up in the Information’s article was scale. It noted time and time again that Apple is having issues scaling good technology they are licensing, which is fast and efficient, to their massive needs. It got me wondering if one of the reasons Apple has struggled with cloud is because they have larger problems to solve than a Google or Facebook due to the engagement levels of their ecosystem and how much is happening at a core computing level on their platform. It sounds odd to say Apple’s scale problems are harder than Google’s or Facebook’s but what if that is true due to the complexity of the platform and ecosystem? I’m just speculating but the bottom line is if they are truly having issues scaling then custom cloud and custom hardware makes sense. It could be optimized and tuned for their needs, which is certainly in line with how Apple operates.

The Fallacy of Apple Revolution

I came across this article from Walt Mossberg on The Verge and I’m reminded how this sentiment, that Apple needs to be revolutionary every year with every product cycle, is such a tired narrative. The iPhone is a mature product selling into a mature market. Understanding these dynamics are paramount to any company that sells technology to consumers. There comes a point in time where it is right for a company to focus on sustaining innovations and that time is now for the iPhone. The time for Apple to create new things, which may disrupt the iPhone, is also near. We speculate this could be The Apple Watch or maybe future VR or some embedded voice assistant in our ears or whatever. But the iPhone does not need to be reinvented like so many believe. It needs to be iterated with sustaining innovations since that is the stage we are in the cycle. It is really that simple.

Let’s examine this statement for a moment:

But the top-of-the-line iPhones were challenged impressively just two weeks ago by rival Samsung’s beautiful, carefully engineered new Galaxy S7 phones. A Verge test showed the Samsung’s cameras are better. Only the sadly typical software mess on those phones makes them lag behind Apple’s long-superior iPhone.

If the smartphone category is to take a leap forward, and the iPhone is to maintain its ever-thinning lead as the best smartphone you can buy, Apple needs to impress big time in the fall.

Firstly, Samsung is likely to sell 30-40m high-end Galaxies this year. We know this just by looking at historical comparables from the line, Samsung’s typical sales share, and buffer in some upside. Contrast that with 200m iPhones of similar spec and price. Samsung has done some wonderful things with the new S7 line, and I expect will as well with the Note in the fall, but 30-40 million? The market pull in the direction of which strategy is quite clear.

Lastly, the smartphone category does not need to take a leap forward. We are no longer in that cycle of the category. Iteration rules the day and Apple’s base will upgrade when they see fit. Not a single “leap” or massive innovation will move the mass market in any meaningful way until they are good and ready. It is the curse of consumer markets, which I could write a book about because it so misunderstood. Apple doesn’t need to be revolutionary, yet. But I’m certain they will be again in the future with whatever new category is up their sleeve.