Apple Inc. May Fall Behind MediaTek, Qualcomm

Image credit: Apple.

Apple has earned quite a lot of praise for its chip-design prowess. Since its acquisition of P.A. Semiconductor in 2008, it arguably has transformed into the leading designer of mobile-targeted applications processors.

During the past two product generations (iPhone 6, iPhone 6s), Apple has led the transition to new chip-manufacturing technologies. Apple's A8 and A8X processors were the first applications processors built on TSMC's 20-nanometer manufacturing technology. The Apple A9 was the first applications processor available on TSMC's 16-nanometer FinFET Plus technology.

It would seem, however, that Apple will not lead the charge into the next chip-manufacturing technology: 10-nanometers.

MediaTek may be the first to TSMC 10-nanometerTSMC has said publicly that it expects to begin to see "sizable" revenue from its 10-nanometer technology "starting from 2Q 2017 through 2018." This suggests that TSMC will begin to recognize wafer revenue by the end of the second quarter (June), implying that wafer production should begin roughly three months before then.

According to analyst Pan Jiutang (via GSMArena), MediaTek's 2017 flagship Helio X30 will use a 10-nanometer manufacturing technology. Given that the Helio X20/25 launched in Q1 2016/Q2 2016, it wouldn't be unreasonable to expect the X30 to arrive in Q1/Q2 of 2017.

It is also expected thatQualcomm's upcoming Snapdragon 830 will be built on a 10-nanometer process. (Samsung is believed to build this chip, though.) The Snapdragon 830 is expected to arrive in early 2017.

The implications for AppleThere are two critical ingredients that define the quality of a chip: the manufacturing technology that it's built on, and the underlying architecture. Think of the manufacturing technology as the canvas, while the architecture is the actual painting. All else being equal, a better canvas should mean a better painting, but a lousy artist with a great canvas isn't going to produce something as good as a great artist with a mediocre canvas.

Apple's architectures are generally superb, so the 16-nanometer FinFET+ A10 chip that will debut this year in the iPhone 7-series phones may be able to keep up in terms of performance with the 10-nanometer Qualcomm and MediaTek chips. However, Apple will be tying one hand behind its back, so to speak, because the 10-nanometer technology should allow MediaTek and Qualcomm to pack in more functionality, and deliver better performance than they otherwise would have been able to on 14-nanometer/16-nanometer FinFET+.

With Qualcomm and MediaTek supplying 10-nanometer chips to most of Apple's premium smartphone competitors, Apple risks falling behind in chip power efficiency, and potentially, performance -- depending on the architectural choices from its competitors.

It may not be a big deal, but why should Apple risk it?Some might argue that Apple being approximately four-to-five months behind in transitioning to a new chip technology isn't going to be a big deal for most people. However, I would argue that a non-trivial portion of those who purchase premium smartphones care about these sorts of things.

Additionally, if Apple loses the chip-performance crown midway through the iPhone 7 cycle, the reputation for chip-technology leadership that Apple has built during the last three years -- i.e. first to 64-bit, first to 20-nanometer, first to TSMC 16FF+ -- could be damaged.

Given all the other areas that Apple seems to be behind in these days (display technology, camera quality, etc.), and given how desperately Apple needs to make sure its iPhone business returns to growth, chip leadership is something that the company should strive to maintain.

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Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. 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.

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