Apple's (AAPL) 'Just One More Thing' Revealed a Small And Hugely Innovative Step Forward

Apple (AAPL) is having a busy 2020. Its recent "Just One More Thing" event emphasized this by recapping the number of "new" products the company introduced during the year: Apple Watches, the 8th generation iPad and iPad Air, a new iPod Mini and iHome Mini, the latest generation of iPhones, and its Apple One subscription bundle and soon its Fitness Plus offering.

While these announcements are interesting (especially for Apple fans) they ultimately represent incremental updates to existing products. The exception here is Fitness Plus, which is a straight up declaration of war on Peloton (PLTN), Mirror, Tonal and Nordic Track.

What was different about its latest event was it presented products that are truly unique in the history of the company. In June’s Worldwide Developers Conference, CEO Tim Cook announced a 2-year road map outlining Apple’s plans to move away from Intel (INTC) as the primary CPU provider and bring this crucial component in house. At the “Just One More Thing” event, Apple announced the availability of Macbook, Macbook Air and Mac Mini powered by the first generation of Apple Silicon dubbed M1.

It would appear that Apple is just getting started, but is it?

On the mobile side of the house, Apple has been producing its own chips for some time, and is now on the 14th iteration of its “A” series. Other in-house chips include the “S” series used in the Apple Watch; the “T” series built for sandboxing user fingerprint verification, real-time encryption and decryption of data and other functions found in a variety of Apple devices; the “W” series that focuses on wireless connectivity; and the “H” series that was developed specifically for Airpods but has since found use in various Beats headphone products as well.

Quite the alphabet soup of chips, but none of them had a dedicated event to discuss their unveiling. Only M1 had that honor.

While Apple has experience developing specific use-case chips, what they have done with the M1 is completely different. In current devices, the CPU is joined via the motherboard to other chips, memory and controllers. M1 was engineered to provide the functionality of all those elements into one chip, known as a system on a chip, or “SoC.” This not only allows for a much smaller motherboard but reduces the distance and travel time for signals to make their way around the motherboard. Given the billions (if not trillions) calculations those processors make, those gains, as imperceptible as they are, add up over time, making intensive tasks move along that much faster.

With Apple looking to pack all sorts of new technology into those boxes, odds are that freed-up space will not be squandered.

In addition to redesigning the interoperability and physical layout of those modules, Apple also has implemented what they call Unified Memory Architecture. In the past, different chips may have needed to receive data in certain formats so as information got shuttled around the motherboard it would often have to be reformatted for different uses. With everything centralized in the M1 chip that data can be used universally, cutting down on a lot of behind the scenes processing. The result of both the physical and logical changes is that these chips are much more energy efficient as well. 

Another first for not just Apple but the industry is that the M1 chip is manufactured using 5 nanometer (nm) technology (5mn is about the size of a single hemoglobin molecule), allowing Apple to pack in 16 billion transistors into each chip. By comparison, Advanced Micro Devices (AMD) and Intel are in the middle of a product design war over 7nm chips, with Intel pushing back the launch of its 7nm product on its inability to manufacture a consistently reliable product.

Apple's CPU contains 8 cores but unlike other chipsets, Apple has taken a two-tier approach, meaning 4 cores are high performance and 4 are lower speed but also require lower energy. Think of it like having a Toyota Prius (mpg > 50) for running errands and Bugatti Chiron (mpg <10) for when you really need to get somewhere fast. You could take the Bugatti grocery shopping but that trip could end up being measured in gallons per mile! 

There is not a lot of visibility into the cost savings Apple might realize by going in-house but the folks at Forbes did some analysis and arrived at a savings estimate of approximately $2.2 billion. For a company like Apple, $2.2 billion isn’t a huge needle mover but aside from absolute dollar savings in cost of goods sold, going in house greatly increases product design efficiencies as well as better production planning as they would be dealing with only one manufacturer, such as Taiwan Semiconductor Manufacturing Company (TSMC). Given Taiwan Semi’s May 2020 announcement of a new Arizona based fabrication plant the current expectation is that this plant will essentially be dedicated to Apple manufacturing.

To recap, Apple’s announcement moves the needle for the industry to a 5 nanometer architecture, creates an opportunity for them to create savings as well as operational efficiencies. The announcement also provided an opportunity for them to poke the Windows Intel / AMD world by resurrecting their “I’m a PC” character for a little fun.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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