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- Okay, so recently we've seen a few
interesting headlines about Apple.
One was about them potentially making a single chip
that would combine cellular, Wi-Fi,
and Bluetooth into one for the iPhone.
And then the next day there was a report
that they're working on their own displays
for the Apple Watch and the iPhone.
And so I've been looking into this.
I've been trying to figure out,
is this a nothing deal or a massive deal?
And so after a lot of research and time put into this,
it turns out the best way to understand this
is with a chart.
See, on the great scale of products
that are made up of a bunch of different parts,
there's a gradient,
and on one half of that gradient is off-the-shelf parts,
and on the other side is fully custom,
vertically integrated part.
Now, most smartphones these days
have a lot of things
like off-the-shelf camera sensors from Sony,
like the Sony IMX585 that they'll just sell to anyone.
There's a lot of displays out there made by Samsung and LG,
but they're calibrated a bit after.
You've all heard us talk about
Qualcomm Snapdragon 8th Gen 2,
and Qualcomm has lots of chips
that any smartphone manufacturer can buy.
And also lots of smaller parts,
like fingerprint sensors and modems and radios
from companies like Qualcomm and Broadcom.
And typically only when you get to the most specific parts
of the phone, like buttons and chassis,
are you going to have custom parts for your phone.
Now, the iPhones chart right now looks something like this.
Now, most people don't think about this much,
but it's actually a cacophony of different parts.
It's like a mixed salad of different things.
The camera sensors, for example,
for all intents and purposes,
they're just off-the-shelf from Sony.
The main supplier of the battery
for the iPhone is a Chinese company called Amperex,
but it is customized a bit.
It's actually L-shaped and multi-celled
to sort of fit maximally in the iPhone's design.
And on the far end, they do have their chassis,
but also the fully customized A16 Bionic,
things like a Taptic Engine.
So there is a big advantage
to having parts that are more custom,
especially in tech,
because the main benefit that you get is optimization.
Like, for simplicity's sake,
just imagine you're trying to build a triangular object,
and you want to fill its volume as efficiently as possible,
but you only have square blocks off-the-shelf.
You won't be very efficient with those parts,
but if you can design all the parts yourself
well, now we're talking.
That's peak optimization.
So clearly you want the the best,
most well optimized pieces for your thing, your product.
You just saw what happened with the Macs,
where they just switched from all those
off-the-shelf Intel parts
to those custom designed Apple silicon pieces,
like that was a massive improvement for Apple,
and all their computers took a quantum leap forward
in speed, in efficiency, in battery life.
Like, they're just hilariously better than ever before.
And so the iPhone,
well, the iPhone is huge for Apple.
I mean, I know Macs are kind of popular,
but most of Apple's revenue,
since it came out in 2007,
has been from the iPhone.
So Apple taking back parts of the iPhone
turns out to be a very Tim Cook,
supply chain optimization story more than anything.
So there were two stories in there,
the displays and the chips.
Let's start with the displays,
because as you may or may not know,
about 80% of iPhone displays are made by Samsung,
yeah, that Samsung,
and about 12% by LG Display,
and then the last 8% by others like BOE Display.
So right now that basically looks like Apple
going to the display maker and going,
"Hey, you guys make OLED displays, right?
Okay, cool. We're gonna need a bunch of those.
We would like, you know, this curve radius,
and these certain cutouts for our little Dynamic Island,
and we'd like a hundred million of 'em.
So if you guys could do that, that would be great,
and we'll pay you up."
And so that manufacturer,
based on their own technology,
will fill those orders using the displays
they know how to make.
And by the way, it's actually kind of super impressive
that all of this happens so seamlessly.
And on the other end,
you don't really know if you have a display
made by Samsung or LG
or BOE in your iPhone.
Now, if you wanna get into the weeds,
multiple sourcing is actually a pretty common tactic
to reduce your reliance on one manufacturer.
So sometimes off-the-shelf parts
from several different companies are all pretty similar,
so for something like the ambient light sensor, for example,
who knows who makes that,
and who cares, right?
Like, as long as we get a hundred million of 'em,
and they all fit in the iPhone the same way,
and they all work, then we're good.
But it can easily go terribly.
Like, think about the big differences
between the Qualcomm-powered Samsung phone
and the Exynos-powered Samsung phone,
or the hardware lottery back when we had the Galaxy S8.
Some of 'em had fast storage chips,
some of 'em had slow storage chips.
So with these iPhone displays,
there is some calibration work that needs to be done,
but Apple has handled the sourcing so well
that we never notice a difference.
So the question now,
after seeing these headlines is,
what happens when we go from Apple's displays
being slightly customized to being completely customized?
Because now there's some rumors
that Apple's trying to move from OLED to microLED,
and really stepping up the design
and quality of their displays
and their watches and phones
in the next few generations.
So when I first read into this,
I actually thought it meant, like, nothing.
Like, Apple doesn't really actually manufacture
pretty much anything.
They are a world-class design firm,
and they do a lot of research and design and development,
but then at the end of the day,
when they actually make the thing,
they're not manufacturing the iPhone
or the pieces in the iPhone,
they get a company to do it.
They might custom design the M2 chip,
but they're getting TSMC,
the actual foundry, to
build the chip for them.
But it turns out with microLED here,
Apple kind of wants to put in a ton of the development
with the technology in their own facilities.
You know, they've already started spending a ton of money
on testing and evolving.
See, that's the main difference.
Before they would go to a company like Samsung or whoever,
and they're already making OLED displays,
'cause that's their technology,
and they would make a couple customizations,
but that technology can be sold to anyone else.
Apple wants to do all the development
and stuff for microLED,
so when they get to the end of the chain,
they give the instructions to someone
and they make it,
but that's an exclusive Apple technology.
So they're kind of trying to get ahead of
and own microLED.
So that's why all these stocks dropped on this news.
You know, when this reset happens,
we don't really know which companies Apple
will be going to to manufacture them.
Apple's still not gonna make the display themself,
and, theoretically, it could be the exact same
list of manufacturers,
but word on the street
is they're trying to strategically drop a certain Samsung,
so we'll see.
So that's the displays,
but then there's also the story about the radios,
which is a little more interesting,
because right now they're buying radios
in their phones from Broadcom and Qualcomm,
but also it's several different radios
in different parts of the phone.
So that rumor was not only
that they're gonna design their own chip,
but that they're going to combine them all,
Wi-Fi, Bluetooth and cellular into one chip.
So that to me is a little more interesting,
because, obviously, it's the same supply chain story
of, oh, no, if you're Qualcomm or Broadcom,
you don't really like that future,
but also the possible efficiency gains,
because right now there's a bunch of radios
taking up different space in the phone,
taking up a bunch of power in the phone,
and ideally consolidating all them to one chip
is really great for efficiency gains.
Maybe it means battery life gets better.
So yeah, both of these stories
are of Apple using their mountains of cash
to put into the upfront development costs
and eventually reap the rewards
of better products down the line for their products.
That's essentially what's happening,
and you better believe that there's gonna be other companies
who have the same idea
and wanna do a sort of a similar thing.
They just might not have as much cash.
So at the end of the day,
who does this affect the most?
Well, you can kind of look at it
along the same lines as the Apple silicone Mac transition.
So if you're Apple,
the main benefit you're gonna get out of this
is having a lot more control,
which, you know, Apple loves that,
but also being able to have better products
at the end of the day.
Great, now if you're one of the suppliers,
if you're Qualcomm or Broadcom
or Samsung maybe,
and you're about to lose a pretty big customer,
well, yeah, then they're gonna feel that.
And then for us, the potential users,
really at the end of the day,
if they're successful with this,
then that means having better products.
And maybe we get mini LED displays
starting in Apple watches at first,
and then maybe in the iPhone bigger display,
and then even bigger ones later.
Cool, but also it'll be interesting
with the competition,
with the competitive environment,
and seeing what companies like Huawei,
and Xiaomi, and Samsung,
and even Google will do along the same lines
and following in their suit.
Always fun to watch.
Okay, hopefully that helped us all understand it.
It helped me. Thanks for watching.
Catching in the next one. Peace.
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