The most significant part of Apple's (NASDAQ:AAPL) launch of the iPhone 5S and 5C were not the phones themselves, rather it is the 64 bit A7 processor, which will be the platform that moves the company safely to higher ground while the rest of mobiles commoditizes. While analysts preened for a mass market $300 phone to "save" the ecosystem, Apple headed in a completely different direction that offers revenue growth and increased margins. Contrary to belief, $300 phones are a dead end.
In all my years marketing mobiles at Intel (NASDAQ:INTC) and its startup competitors Cyrix and Transmeta, there were three transitions that mattered in the x86 market. The first was the 286 to 386 transition in the early 1990s that finally separated Intel from AMD and set it on a tremendous growth path. The second was Transmeta's launch of the first truly low power mobile x86 marketed to the all day battery machines in Japan, which required Intel to redesign it mobiles. And finally, the third was AMD's (NYSE:AMD) launch of the world's first 64 bit x86 server processor in 2003, which drove incredible profits for a couple years until Intel launched its own.
Apple's launch of the original iPhone rightly focused on the new features and capabilities while downplaying the processor -- after all it wasn't one of Apple's. However, with the closing of the gap due to Android and the multitude of ARM mobile chip vendors, Apple had to make a move to separate itself not just from the consumer market but from the more profitable corporate sector.
Tim Cook has not mentioned it publicly but his number one goal is to take over the corporate Wintel business that has driven profits for Microsoft (NASDAQ:MSFT) and Intel over these past 30 years. With every new O/S and processor, the duo have been able to knock on corporate IT doors and create pull based on the strong new technical aspects of their respective products. A natural pull for high end PCs and professional Windows O/S with security was put in place as "no one ever got fired for buying IBM (NYSE:IBM)" (Wintel).
In front of Tim Cook is a corporate market dying to have a supplier that has a cohesive product line of interoperability. In one year's time, all of Apple's products focused at corporate will be 64 bit, and in the history of computing, this is the fastest transition that has ever taken place.
Consider the Intel 286 to 386 transition. It took Intel roughly 5 years for the 386 to out ship the 286. When Andy Grove launched the "Red X" (286 to 386) advertising campaign in 1990 there were only a handful of apps that could run 32 bit. Even more incredible, Microsoft would not offer a 32 bit O/S until Win NT shipped in 1996, or more than 10 years after the first 386 shipped.
Apple's decision to launch the 64 bit A7 in the iPhone 5S and expected soon in the iPad 5 will set the stage for software app developers to focus most of their attention on not just porting apps but creating interoperability with OS X at the expense of Android. The question now becomes, will Google (NASDAQ:GOOG) focus on an open 64 bit Android in a commoditizing market or will it take things internal with its Motorola unit?
Microsoft has a 64 bit O/S but will likely have to work closer with Intel on a complete platform that is economical as well as interoperable. I believe a closer partnership is likely to occur -- the question is the timing of the next products relative to Apple's in the coming year.
With the launch of the iPad 5, with which I expect to see a version outfitted with a large amount of DRAM (as much as 8GB) and NAND, Apple will have the road warrior's tablet in the hands of many corporate IT personnel in order to start the wave of 64 bit mobile sales. This will automatically drop many mobiles and vendors from the approved vendor list for corporate buying.
Many people forget that Tim Cook worked at Compaq in the 1990s and witnessed the treadmill of Intel processors that forced OEMs to constantly refresh PCs, sometimes within a few months' time. The process was beneficial to Intel and at the expense of Compaq as writedowns occurred often on PCs with obsolete processors.
In many ways what Cook has already put in place with the yearly product introductions is a treadmill that freezes the competitors during the high consumer holiday selling season that lasts through Chinese New Year. Layered on top of this, he seeks to build in a corporate selling treadmill that favors Apple's mobile and iOS introduction schedules, thus building a wide moat around the top half of the market that drives profits.
If as expected, Apple launches the A8 next year as the latest 64 bit processor with features that excel against all, even Intel in performance and power, then it will have completely taken Intel's game away while the latter is demoted to selling in the $300 mass market that continues to commoditize. And that is the end game that no analyst has put a pencil to.
Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.