Apple, Intel splitting up after 15 years

Computer maker said to be planning to make own chips

Silicon Valley is bracing for a long-expected breakup of Apple and Intel, signaling both the end of one of the tech industry’s most influential partnerships and Apple’s determination to take more control of how its products are built.

Apple has been working for years on designing chips to replace the Intel microprocessors used in Mac computers, according to five people with knowledge of the effort, who weren’t authorized to speak about it. They say Apple could announce its plans as soon as a company conference for developers Monday, with computers based on the new chips arriving next year.

Apple’s move is an indication of the growing power of the biggest tech companies to expand their abilities and reduce their dependence on major partners that have provided them with services for years even as smaller competitors and the global economy struggle because of the coronavirus pandemic.

Facebook, for example, is investing billions of dollars into one of Indonesia’s fastest-growing apps, a telecom giant in India and an undersea fiber-optic cable around Africa. Amazon has built out its own fleet of cargo planes and delivery trucks. And Google and Apple continue to buy upstarts to expand their empires.

Taiwan Semiconductor Manufacturing, the partner Apple uses to build similar components it designs for iPhones and iPads, is expected to make the Mac chips in factories in Asia an arrangement much like Apple’s use of Foxconn to assemble iPhones.

Intel and Apple declined to comment. Bloomberg previously reported on Apple’s plans.

Other big tech companies like Amazon and Google already design some of their own chips, both for performance and potential cost reasons. Some tasks, like artificial intelligence and the rendering of 3D images, can be handled more efficiently on special-purpose circuitry rather than the general-purpose microprocessors that are Intel’s mainstay.

Since 2005, Macs have used effectively the same Intel chips that most PCs do. Making its own processors would give Apple even more control over how Mac computers work. Apple has always designed the chips used in iPhones and iPads, adding features to customize designs licensed by Arm, a semiconductor firm owned by the Japanese conglomerate SoftBank. Apple’s forthcoming Mac chips are also expected to rely on Arm technology, improving compatibility with its mobile devices.

Apple has created a large chip-design team, building on the 2008 purchase of a 150-employee startup, PA Semi. A large number of them once worked at Intel, including Johny Srouji, who reports directly to Apple’s chief executive, Tim Cook.

Apple’s move would be a symbolic blow to Intel, particularly when civilian and military officials are concerned over the weakening of U.S. leadership in chip manufacturing, which they regard as crucial to the country’s ability to retain an edge over China. Legislation introduced in Congress last week, with rare bipartisan agreement, would funnel tens of billions of dollars to bolstering U.S. research and manufacturing in semiconductors.

Intel has long been a U.S. standard-bearer in the semiconductor business, particularly in the complex manufacturing processes that turn silicon wafers into the chips that power computers, smartphones, cars and consumer devices.

The move’s financial impact on Intel would be muted, at least in the short term. Intel sells Apple about $3.4 billion in chips for Macs each year, according to C.J. Muse, an Evercore analyst. That is less than 5% of Intel’s annual sales, and Muse forecast that the blow would be closer to half that since Apple might change the chips on only some Mac models. Apple sells nearly 20 million Macs a year.

“That’s not chicken feed, but it’s compared to total PCs sold of about 260 million” a year, said Tim Bajarin, an analyst who has tracked Apple for nearly 40 years. Intel supplies the chips for just about every PC.

But the long-term effects could still be serious for Intel. The chipmaker’s lofty profit margins have long been linked to its track record of delivering the most powerful computing engines on the market, particularly for laptops and computer servers. But Intel has never done well selling chips for newer tech products like smartphones and tablets.

Apple’s last chip transition for Macs, in 2005, was viewed as a major step in the long-term comeback orchestrated by Steve Jobs, one of the company’s founders, as well as a big victory for Intel. Macs had long relied on a design, called PowerPC, that was a collaboration among Apple, Motorola and IBM. But Jobs bet that Intel could provide much faster performance.

That selling point has been undermined by troubling news from Intel’s huge factories. Much of the company’s success in computers stems from its history of packing more transistors on each square of silicon, which allows the chips to keep carrying out more computing tasks at a lower cost.

But Intel has stumbled badly in that industrywide race to miniaturize. Intel’s latest process for making chips, once expected as early as 2015, did not enter high-volume production until 2019. The delay aided Taiwan Semiconductor and Samsung Electronics, which produce chips designed by multiple companies. The competitors exploited Intel’s lag to take a technology lead.