Digging Into This Massive Apple Inc. iPhone 7 Mystery

By Markets Fool.com

Image source: Slide from engadget live coverage of Apple iPhone 7 Launch.

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At Apple's (NASDAQ: AAPL) iPhone 7 launch event, the company made quite a big deal about the new A10 Fusion chip that powers the company's newest phones. The processor represents a substantial improvement in both CPU performance (which makes everything faster) as well as in graphics tasks (which makes games and other 3D-intensive applications smoother).

In particular, Apple claims that in terms of graphics performance, the A10 Fusion is 50% faster than the A9, but that it delivers this improvement with just two-thirds the power consumption of the prior-generation A9 chip.

Had Apple also transitioned to a new chip manufacturing technology in going from the A9 to the A10, this would have been impressive. The fact that Apple is still sticking with the same Taiwan Semiconductor Manufacturing Company (NYSE: TSM) 16-nanometer FinFET+ technology with this new chip makes it crazy impressive.

It's clear that major design changes have been made to the graphics portion of the A10 Fusion chip relative to the A9's graphics subsystem. So, the question that arises is: What graphics processor is Apple using in this new chip?

Three candidates, with only two likely ones

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There are three potential options that Apple could have gone with for the graphics portion of the A10 Fusion chip. The first is that Apple may have adopted Imagination Technologies' (NASDAQOTH: IGNMF) Series 7XT Plus design. That design is similar to the Series 7XT design that Apple used in the A9/A9X, but with some enhancements.

The next is that Apple could be using Imagination's next-generation Series 8XT graphics cores. The details of this technology have not been formally announced, but the company did mention in its July earnings presentation that it aims to "consolidate [its] position and retain leadership in high-end phones with series 8XT cores."

And, finally, we could be looking at a totally custom graphics processor design by Apple.

Given the magnitude of the performance improvement, the Series 7XT Plus probably isn't what's being used here. This leaves the possibilities of Apple using a Series 8XT processor and a custom processor.

Furthermore, given that Imagination said that it aims to "retain leadership in high-end phones with series 8XT cores," and given that Apple is far and away its largest high-end phone customer, it stands to reason that the A10 Fusion chip is using a Series 8XT processor.

Why hasn't Imagination "announced" the Series 8XT?

If Apple is already shipping chips with Series 8XT graphics cores, then why hasn't Imagination formally announced Series 8XT and made a big deal about it?

My guess is that Apple didn't want Imagination "giving away" the kind of graphics performance enhancement that customers should have expected from the iPhone 7 ahead of the device's launch. After all, had Imagination announced these cores and given its performance/power consumption estimates, then it wouldn't have been too hard to predict what Apple was going to announce with the A10 Fusion.

By keeping mum on Series 8XT's performance and capabilities, Imagination likely allowed Apple to "surprise" customers in a way that wouldn't have been possible otherwise.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.