Apple Inc. Changes iPhone and iPad Chip Strategy

Markets Motley Fool

Over the past several Apple (NASDAQ: AAPL) iPad and iPhone product generations, Apple has produced two versions of each of its processors. The first version of an Apple processor, usually designated with an "A" followed by a number -- A9 and A10 Fusion, for example -- would be targeted at the company's iPhone lineup.

Continue Reading Below

Apple would then follow up each A-series processor with "X" versions of those chips -- e.g., A9X and A10X Fusion. Generally speaking, the "X" version would be a scaled-up version of the non-"X" chip, and it would generally be built using the same manufacturing technology as its smaller, iPhone-bound counterpart.

A corollary is that Apple's iPhone processors were the first to adopt new chip manufacturing technologies while the iPad processors would follow.

With the A10 Fusion, which powers the iPhone 7 and iPhone 7 Plus, and the A10X Fusion, which powers the new iPad Pro tablets, Apple appears to have reworked its chip manufacturing strategy.

iPad first, iPhone second

The A10 Fusion chip inside the iPhone 7-series smartphones is manufactured using Taiwan Semiconductor Manufacturing Company's (NYSE: TSM) 16-nanometer technology. The A10X Fusion, on the other hand, is built using TSMC's brand-new 10-nanometer technology, which promises a substantial area reduction relative to its 16-nanometer technology, as well as some performance and power benefits, according to statements from the contract chip manufacturing giant.

Continue Reading Below

The A11 Fusion chip that will power this year's iPhone models is expected to also be manufactured using TSMC's 10-nanometer technology. In fact, TSMC reportedly began producing the A11 Fusion back in May.

So rather than have iPhone take the lead in terms of new chip manufacturing technologies, Apple is transitioning its iPad processors to new manufacturing technologies first.

Why would Apple do this?

Apple's iPad isn't anywhere near as important a product as the iPhone is, at least from a business perspective. If Apple faces supply issues and/or technical difficulties with a future iPad, the company can just delay the new product introduction and shareholders aren't going to be terribly perturbed. However, if something goes wrong with the iPhone, which far and away makes up Apple's most important business unit, then that's bad news for Apple and its stockholders.

In that context, it makes sense that Apple would deploy new, relatively risky technologies in its iPad Pro products first, to iron out the kinks before bringing those technologies to bear on an iPhone.

Furthermore, Apple appears to have shifted its iPad product launches from late fall, shortly following an iPhone launch, to either spring or early summer. Given the pace at which Apple's contract chip manufacturing partners introduce new chip manufacturing technologies, and given Apple's iPhone and iPad launch schedules, it may simply make sense from a timing perspective for the iPad Pro to get chips built using new manufacturing technologies first.

Foolish takeaway

I wouldn't be surprised to see Apple use the iPad Pro as a proving ground for new chip manufacturing technologies, as well as other technologies that ultimately make their way into the iPhone. The iPad Pro product family ships in relatively small volumes, and the launch schedules of Apple's iPad products are generally much more flexible than the company's iPhone launch schedules for a number of reasons, so such a strategy seems quite sensible.

10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.