Apple's iPad Chip Development Cost Estimated in $1 Billion Range

[cmaier]

So, his opinion is that the original Mac's weren't "really aspirational" then?

Huh?

I remember when they used 68000-series chips, before the move to PowerPC. It's only VERY recently in Apple's history that they've started using Intel.

Though, to be fair to Fred Weber, this may be a massive edit by the reporter of what he actually said - it's hard to believe that a "chip expert" wasn't aware of the Mac until the move to Intel

Yeah, Fred knows what he's talking about. Among other things he was CTO at AMD, and nearly single-handedly invented AMD64. He also had a lot to do with Hypertransport, etc. He knows his stuff. Judging by how the NYT piece cites the $1B without a source, I'm guessing he was taken out of context.

 

[cvaldes]

too bad they are only going to sell about 20 of these things.

I don't know if you are being sarcastic, etc., but if indeed you are being truthful, I will wager a billion dollars that Apple will sell more than twenty iPads.

 

[Neotyguy40]

It costs about $17 to make each chip... Apple needs to sell about 50 million iPads to makes 0% profit? Sorry guys! You are factoring out ALOT:

1. Money from Apps, music, movies, TV shows.
2. How much money is given by the iPad, not just the chip... They make about 80% profit from each one (I think).
3. Halo effect on buying other products.

Just remember, the base number isn't the only factor on how much money Apple will make!

 

[neilw]

What a horrible reporting job. First, the original NYT article says it can take up to $1B to design a smartphone chip from scratch, without any attempt whatsoever to explain what that means. Next, every blog on the planet interprets that to mean Apple spent $1B developing the A4.

As others have commented, the estimate for the A4 is likely off by at least an order of magnitude. Even though we don't know exactly what's inside the chip, we *do* know it's an ARM, and extremely likely (>99%) that the CPU and GPU cores are licensed rather than home-grown. I actually continue to be curious what special sauce Apple could have added to make it significantly better than a "stock" A8- or A9-based chip.

I love MR, but this article should be rewritten or at least heavily amended.

 

[cmaier]

What a horrible reporting job. First, the original NYT article says it can take up to $1B to design a smartphone chip from scratch, without any attempt whatsoever to explain what that means. Next, every blog on the planet interprets that to mean Apple spent $1B developing the A4.

As others have commented, the estimate for the A4 is likely off by at least an order of magnitude. Even though we don't know exactly what's inside the chip, we *do* know it's an ARM, and extremely likely (>99%) that the CPU and GPU cores are licensed rather than home-grown. I actually continue to be curious what special sauce Apple could have added to make it significantly better than a "stock" A8- or A9-based chip.

I love MR, but this article should be rewritten or at least heavily amended.

Maybe they are factoring in that they are infringing one of my client's patents, and the $1B includes the money I'm going to extract from them in the lawsuit?

 

[ibjoshua]

I love MR, but this article should be rewritten or at least heavily amended.

Yeah, but at least it didn't quote iSuppli like it actually had any relevance.

It costs about $17 to make each chip... Apple needs to sell about 50 million iPads to makes 0% profit? Sorry guys! You are factoring out ALOT:

1. Money from Apps, music, movies, TV shows.
2. How much money is given by the iPad, not just the chip... They make about 80% profit from each one (I think).
3. Halo effect on buying other products.

Just remember, the base number isn't the only factor on how much money Apple will make!

I think you're barking up the wrong tree. Apple is not Microsoft. The iPad is not another xBox (nor is it another iPhone). It will be designed to make a profit on each unit, all the rest is just a bonus.

 

[nniicckk]

(a) FACT: Even accounting for the cost of purchasing PA Semi, this number is very high for one chip. It may, however, be a somewhat inflated estimate based on a family of chips developed over years; chips that we are yet to see.

(b) FACT: Apple could not have started from scratch, it is very difficult to go from scratch to production quantities in two years for a processor of this caliber. This would have reduced their development cost.

(c) FACT: The problem with chip design is not building one chip, it's building a family of chips over a period of time that stay with the curve (speed, power or any other metric). This was the problem every major systems manufacturer faced when rolling their own silicon, even those with deep budgets like HP, Sun and IBM. If you are developing only a few chips, it's hard to keep up with the process and arch improvements pushed by the likes of Intel because you have less volume over which to amortize the fixed capital costs.

VIEWPOINT:

Given the above, the primary reason for Apple to build their own processor is not power or speed but security and control. The Cortex A9 is a very powerful design so you can get the speed with an off-the-shelf design. Power is somewhat of a factor, but it's an issue that has been explored for a while, especially by ARM and again not The reason for building your own. But you need to do it yourself, if you want to lock down the processor and control it closely. If you lock down the processor, you can lock down what software runs on it. The Xbox 360 does it. And Apple is paranoid enough about this issue to want to do it. We will find more of this when the ipad actually ships.

 

[BlueQ]

I don't know if you are being sarcastic, etc., but if indeed you are being truthful, I will wager a billion dollars that Apple will sell more than twenty iPads.

Definitely being sarcastic, and I would take that bet too! lol.

 

[LagunaSol]

Analysts should be completely disregarded concerning internal company workings.

iSuppli and Rod Enderle should be completely disregarded always.

 

[dejo]

iSuppli estimated the cost to produce, not the R&D costs. This doesn't effect the iSuppli estimate in the lease.

There's a lease? Wow! I figured there might be some licensing but I had no idea there would need to be a lease as well.

 

[lilo777]

Apple spends a ton of money on R & D while other other low-life companies sit in the sidelines waiting to see what they come up with ...

Then they copy Apples products leaving out the quality ... nice eh?

Rock on Apple!

Yeah, Apple spends a lot on R&D and this is why its products are so great! Too bad it's just an urban legend. I did not look up the latest data but in 2007 MS outspend Apple 9 to 1 in R&D spending. Samsung is going to spend on R&D about $10 billion this year which is even more than MS. Intel spends about $6 billion. Nokia spends about $8 billion every year. By contrast, in 2008 Apple spent $1.1 billion.

However, in TV advertisement, Apple outspends all these companies combined by 9:1

 

[MH01]

Apple spends a ton of money on R & D while other other low-life companies sit in the sidelines waiting to see what they come up with ...

Then they copy Apples products leaving out the quality ... nice eh?

Rock on Apple!

Well thank god that all the components that go into apple computers, "just exist" before apple spends a fortune on the R&D to make em shiny! What exactly do you think intel or sony spend??? , Apple products are never first to use state of the art technology, they take thier time to get it right, and charge a premium for it.

I wish apple would hurry up and invent the quad core MBPs or some fancy drives that play 'HD' video.... oww hang on!?!?!? you can buy a crappy dell with a quad core and a blue ray!

 

[Michaelgtrusa]

Bravo!

 

[Gepper]

Now, if the clueless posting here would just buy a clue, they'd realize that Apple just tweaked an existing design, they did not design it from scratch, so it cost a whole lot less.

Not to dispute your claim, but how do we know this? As far as i know the chip could include graphics capabilities. Do we know *anything* concrete about the chip?

 

[djellison]

"At the same time, Apple, Nvidia and Qualcomm are designing their own takes on ARM-based mobile chips that will be made by the contract foundries. Even without the direct investment of a factory, it can cost these companies about $1 billion to create a smartphone chip from scratch."

But of course, none of those people ARE designing from scratch, they're starting with ARM based mobile chips and working from there. What a sensationalist headline seeking article.

 

[Mattie Num Nums]

Apple spends a ton of money on R & D while other other low-life companies sit in the sidelines waiting to see what they come up with ...

Then they copy Apples products leaving out the quality ... nice eh?

Rock on Apple!

Because before Apple bought PA Semi they were brainless wastes with no ideas.

 

[Clive At Five]

If it's one thing Apple has, it's money to throw at projects like designing their own chips from scratch.

While I certainly see the advantages that brings (gfx & battery optimization to name a couple), they may have been able to sell the iPad for even less if they had used a cookie-cutter ARM.

If I've learned anything about Apple's products, though, it's that people don't seem to care how much they cost.

-Clive

 

[LOLaMac]

Apple spends a ton of money on R & D while other other low-life companies sit in the sidelines waiting to see what they come up with ...

Then they copy Apples products leaving out the quality ... nice eh?

Rock on Apple!

Did you not read the article where it said *other* companies are also designing their own chips?

 

[Bonte]

Yeah, Apple spends a lot on R&D and this is why its products are so great! Too bad it's just an urban legend. I did not look up the latest data but in 2007 MS outspend Apple 9 to 1 in R&D spending. Samsung is going to spend on R&D about $10 billion this year which is even more than MS. Intel spends about $6 billion. Nokia spends about $8 billion every year. By contrast, in 2008 Apple spent $1.1 billion.

And yet this chip costs about 1 billion in development let alone the rest of the iPad hardware, tweaking the OS, new interfaces, special API's and a new programming environment. These R&D expenses only cover the iPad, just factor in the Macs, iPods, osX and iTunes.

It all depends how these company's book the expenses, is working on Simbian R&D or a production cost?

Samsung R&D news
http://www.sisa.samsung.com/news_detail.htm

 

[grayskies]

That price sounds freakishly high - but it might include the purchase of PA Semiconductor.

Incidentally, was reading some back stories about this, and found this snippet. News to me..

Quote:
When Apple bought PA Semi, it had no intention of morphing into a military supplier. The Defense Department, however, received push-back from suppliers who had already committed to long-term designs based on the microprocessor. These equipment makers urged the Pentagon to pressure Apple into continuing to supply PA Semi’s chips for several years, according to people familiar with the negotiations, who declined to comment on the record because of Pentagon restrictions. Apple eventually caved.

Source: NYT

-interesting

Along this line, is there money to be made by Apple this? Perhaps, not worth it?

 

[inlovewithi]

Apple spends a ton of money on R & D while other other low-life companies sit in the sidelines waiting to see what they come up with ...

Then they copy Apples products leaving out the quality ... nice eh?

Rock on Apple!

It says that the cost for a company like Apple to develop a mobile chip is estimated at approximately 1 billion dollars. This is not an article with numbers about how much it cost Apple, just an estimate of how much it would cost any company. If other companies stood idle waiting for Apple to do things, then they would go out of business. If another company decided to copy Apple and build a mobile chip, then they wouldn't be saving any money since they would have to do all the work also.

 

[cmaier]

It says that the cost for a company like Apple to develop a mobile chip is estimated at approximately 1 billion dollars. This is not an article with numbers about how much it cost Apple, just an estimate of how much it would cost any company. If other companies stood idle waiting for Apple to do things, then they would go out of business. If another company decided to copy Apple and build a mobile chip, then they wouldn't be saving any money since they would have to do all the work also.

No, the other company would save $950 million, because it costs anyone other than Apple less than $50M to design an ARM chip.

Of course I'm being facetious - it cost Apple less than $50M (ignoring the purchase price of PA Semi).

 

[Kimbie]

Yeah, but at least it didn't quote iSuppli like it actually had any relevance.




I think you're barking up the wrong tree. Apple is not Microsoft. The iPad is not another xBox (nor is it another iPhone). It will be designed to make a profit on each unit, all the rest is just a bonus.

Designed to make a profit? If MS wanted to they could have set the price of the 360 to make a profit from the start, it would have to have been about £500 or something.

Apple can easily make a profit as they charge the Apple tax, people will pay whatever it costs to buy the latest and greatest mac product.

I use both PC and Macs so I am not biased either way, somethings Windows is better than OSX and vice versa. The same goes for their laptops, yes you can buy a wintel laptop for half the price of a MBP, with similar specs and even get metal case ones, but people buy the mac books for whatever reason and are happy to pay this Apple tax.

Which often means Apple is in the unique position to be able to make a profit on every single unit it sells.

Now in relation to the article, unless that so called 1 billion is broken down, I think it needs to be taken with a pinch of salt. Ok that 1 billion could have been for the Ax chip design, so they may have made different versions of it, which would lead to the increased cost, and Intel have spent over $28 BILLION in 3 years for R&D, so apples 1 billion does not seem to bad, but of course it depends on what extent they modified the original ARM chip

Kimbie

 

[inlovewithi]

Yeah, Apple spends a lot on R&D and this is why its products are so great! Too bad it's just an urban legend. I did not look up the latest data but in 2007 MS outspend Apple 9 to 1 in R&D spending. Samsung is going to spend on R&D about $10 billion this year which is even more than MS. Intel spends about $6 billion. Nokia spends about $8 billion every year. By contrast, in 2008 Apple spent $1.1 billion.

However, in TV advertisement, Apple outspends all these companies combined by 9:1

Reminds me of that Mac vs PC commercial where the PC guy has this little bit of cash set aside to “fix” Vista, and has this large pile of cash set aside to promote it.

 

[babyj]

As cmaier mentioned, you are correct.

Wikipedia article: http://en.wikipedia.org/wiki/Acorn_Computers_Ltd

There was an excellent drama / documentary on the BBC last year telling the story of Acorn Computers, entitled "Micro Men". There was some dramatic license but the main facts and a lot of the things that happen were all true.

Well worth a watch if you're in to retro computer stuff, though it doesn't go as far as the Arm development (stops just before it).