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Apple: Becoming A Semiconductor Powerhouse

Mar. 31, 2015 9:32 AM ETApple Inc. (AAPL)ARMH, INTC, QCOM122 Comments


  • Apple's iOS devices all use Apple's custom processors.
  • Because of the explosive growth of its mobile devices, Apple has become one of the world's largest semiconductor companies.
  • Apple's semiconductor prowess will make it possible to build ARM-based Macs at lower cost and higher margin than with Intel Inside.
  • This economic imperative will mandate a Mac transition to ARM beginning in 2016.

Often overlooked by Apple (NASDAQ:AAPL) bears is the fact that Apple has become one of the largest semiconductor makers in the world. Apple's custom systems on chip (SOCs) power all its iOS devices and represent a $6 billion business on its own. More importantly, Apple has created a technical discriminator that devices with commodity ARM (ARMH) processors have had difficulty matching. The future of Apple's semiconductor business is bright, as it forges SOCs to rival Intel's best.

Commodity Volume

The volume of Apple's chip business is one that all but a few chipmakers would envy. Based on only iOS devices (iPhone, iPad, iPod Touch), Apple is selling 100s of millions of SOCs a year. This doesn't include other Apple products such as iPod, Apple TV or the many smaller supplemental chips that carry the Apple brand that can be found in its mobile devices. The chart below shows the unit volume growth over the past five fiscal years.

Note that Apple's fiscal year starts in October, so 2014 doesn't include the explosive growth in iPhones of the fiscal 2015 Q1 December quarter.

It's not easy assigning a dollar value to Apple's chip business, because Apple doesn't provide a cost breakdown for its devices, of course. There's wide divergence in the cost estimate for Apple's latest SOCs. IHS provides an estimate of $22 for the A8X and M8 motion coprocessor in the iPad Air 2. While Techinsights' estimate of the cost for the smaller and less capable A8 SOC in the iPhone 6 is $37.

For purposes of getting a ballpark value of equivalent revenue from Apple's SOC business, I settled on an ASP of $25. This is consistent with the estimated cost for typical ARM SOCs. In the chart below, I rank semiconductor companies by revenue in fiscal 2014, including Apple. (Here, I used

This article was written by

Mark Hibben profile picture
Balanced, expert investing strategies from a technologist's perspective
Mark has a masters in Electrical Engineering from USC, is an independent iOS developer, and blogs about technology trends and companies, the focus of his investments.

Analyst’s Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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