Tag Archives: apple

On Moore’s Law’s and the Apple Watch

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Today, Jean Louis-Gassée shared some thoughts on forecasting demand for the Apple Watch.  He is thoughtful about the impact Moore’s Law will have on the higher-end models, writing:

But the biggest question is, of course, Moore’s Law. Smartphone users have no problem upgrading every two years to new models that offer enticing improvements, but part of that ease is afforded by carrier subsidies (and the carriers play the subsidy game well, despite their disingenuous whining).

There’s no carrier subsidy for the AppleWatch. That could be a problem when Moore’s Law makes the $5K high-end model obsolete. (Expert Apple observer John Gruber has wondered if Apple could just update the watch processor or offer a trade-in — that would be novel.)

Gasse’s comments were picked up elsewhere, including The Loop. So far though, I haven’t seen anyone consider the impact of the WatchKit software architecture on this question. So I commented with my own thoughts, which I’m revising and publishing here.

The current version of WatchKit only gives developers access to the the watch as a smart terminal interfacing communicating with code running on an iOS device over Bluetooth Low Energy. In this model, the processing demands on the watch are pretty flat across different apps and over hardware generations, since they are bounded primarily by display resolution, which is itself bounded by the optical characteristics of our eyeballs, and UI update rates. As such, Moore’s law improvements would probably accrue to battery life and component cost. I doubt that will have a significant impact on the end-user experience — I suspect that the screen and wireless make up a large portion of the power budget, and neither are going to be tightly linked to Moore’s law improvements. As for expense, I doubt that annual SoC price reductions will have that much impact on anything but the lowest end models (if it impacts them at all).

We’ll see what happens “later next year” when Apple allows native apps to run on the watch. My guess is that their execution will be tightly managed, as they were for web apps in iOS 1.0, and native apps when they were enabled by iOS 2.0. As a result, Apple will have a lot of ability to manage the way the platform and apps takes advantage of Moore’s law.

I’d guess that there will still be major generational discontinuities, but they will come every 5-10 years, rather than every year, as they do with iOS devices. That still creates issues for a device that some may expect to last lifetimes, but perhaps that assumption must itself be revisited.

For all the talk about the timelessness of high-end timepieces among analog watch aficionados, it isn’t all that relevant in the larger sense. The fundamental issues, when deciding whether to spend thousands of dollars on a watch, is: do I have thousands of dollars to spend on a watch when a $50 watch would tell me the time just as well; if so, does spending thousands of dollars on a watch feel good to me (which is sometimes a question of whether it sends the “right” message to others).

I suspect that for all the people who, today, spend thousands of dollars on a luxury watch because of their quality and timelessness, a significant portion could find a different reason to spend thousands of dollars on a watch. Along side of them, a significant number of other people who could spend thousands on a luxury watch, but are unpersuaded by whatever appeal drives traditional high-end watch buyers. Some of these people could find other reasons to buy an Apple watch.

I am at this point unlikely to spend thousands, or even hundreds on any watch, particularly since I finally gave up on wrist watches all together when I started carrying a “pocket watch” (read: cell phone). I will not be surprised though if I am wearing a lower-end Apple Watch a year from now. As a kid in Utah, when I used to go skiing, my friend and I would be freezing our asses off riding the ski lift, and would find ourselves checking our watches for the temperature. Our watches didn’t tell the temperature, and, as I recall, there was not yet any (affordable) watch on the market that told temperature. Still, it was natural to us that a wrist device should provide useful information like that. So, I’m willing to give the (lower end) Apple Watch a try.

 

 

In the best light

Microsoft may have, um, borrowed a lot from Apple in designing their own Microsoft Store retail experience, but beyond the superficial similarities are important differences.

To give but one example, I found browsing on the Surface RT to be slow, halting experience. Microsoft seemed to be blocking some of the websites I tried to visit and redirecting them to their own home page, but even when the sites weren’t blocked, they were slow to load. Some of it could have been a software issue, but I think a lot was related to the WiFi network in the Microsoft store, and the speed of its connection to the Internet.

Apple knows better. The WiFi and Internet connection at their store is speedy, allowing them to show their products in the best possible light, and it worked, the iPad Mini and iPad felt snappy when browsing the web. The Surface RT felt sluggish.

 

On Intel’s Decline

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The latest installment in a theme I’ve been iterating on for a while now: The Decline of Intel.

This was posted as a comment on a recent post by Jean Louis Gassee on the subject of CPUs and SoCs:

Intel’s strategic position has been eroding since 3DFx came along 15 years ago. From that point on, every PC sold included a bunch of transistors that were paying off the amortization on someone else’s big fab investment. Intel is finally clawing some of that territory back, but I have my doubts that it is going to be enough.

The bottom line is that Intel’s competitive position depends in its ability to invest ahead of competitors in next gen fab technology. It can afford to do so because of its dominant position in desktop and server CPUs and the healthy margins that brings.

The problem for Intel is that each new fab generation is more expensive than the last, and doubles the number of transistors they can produce. Together, this more than doubles the number of transistors they have to sell to maintain their margins. History suggests that this has been a long term challenge. Their average selling price has declined over the last decade in order to balance the supply/demand equation.

They’ve been clever about maximizing their ROI. They use lower margin CPUs to keep the latest generation fabs full, underwriting the cost of fabbing their higher-margin server CPUs. They maximizing the productive life of their older fabs by using them to build support chips (this is why Intel made incursions with x86 chipset makers in the mid-2000s). Unfortunately, this model has its own limits. One of the ways they’ve been managing to schlep transistors is by integrating more and more features directly onto the CPU die, but by doing so, they undermine their own support chip business, cutting in to opportunities to continue to extract revenue from their older fabs.

Which brings us to mobile. Mobile devices can drive a lot of volume, but they don’t drive a lot of revenue. Apple’s new A6 SoC is roughly the same size of one of Intel’s low end i3 CPUs, but intel sells the i3 for 5-10x what Apple, or any other mobile vendor, is likely to pay for a cutting edge ARM SoC.

It appears that Intel may finally have achieved the power/performance ratio needed to play in mobile phones, but it will probably be at least another year before they even have a chance of having design wins that pay-off in significant volume. And even if they do, their growth is limited. Samsung is a major player in phones, and they tend to favor their own SoCs. Apple is the other big player, and they have obviously made their own bet. That leaves Qualcomm’s market share for Intel. I expect that will be a tough fight. Qualcomm will integrate the SoC with the baseband, and they have a lot of patents to bring to that fight. And then there are all these ARM licensees. It is crazy looking at the evolution of ARM SoCs going into cheap Chinese Android tablets.

I just don’t see a big opportunity for Intel. They have a narrow window to gain any sort of real foothold, and the territory they can gain is unlikely to be enough to hold back the tide of ARM licensees which will start eating into their server revenue.

Intel is vertically integrated around the design, fabrication and marketing of CPUs and related components. The advantages of that strategy are in decline. For chips, that seems to be giving way to merchant fabs, which can get the best ROI on their fab investment by leaving the design and marketing of chips to other companies, like Apple, who are vertically integrated around their end-user, and for whom designing their own SoC allows them best serve their customers and drive economies of scale.

Apple, Cricket & Virgin. Hints of the future?

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Before I could finish a long overdue post on Apple’s evolving relationship with mobile carriers, events overtook me. Since I started writing that post, Virgin Mobile and Cricket Wireless will soon be selling iPhones for use with their pre-paid plans. The pre-paid plans offer significantly lower monthly rates than traditional iPhone plans from AT&T and Verizon, particularly, but the hardware is significantly more expensive than the subsidized prices offered by those carriers. I find these developments interesting for a few reasons.

First, I it fits the pattern I described in my earlier post in that Apple is experimenting with more expensive phones in combination with cheaper, more flexible service.

Second, it is coming sooner than I anticipated, in ways I didn’t anticipate. I thought it would start with TMobile, but it is instead starting with Sprint, which owns Virgin Mobile, and Cricket, which makes heavy use of Sprint’s network. While I thought this would start with TMobile, it makes sense that it is starting with Sprint, since Sprint, like TMobile, is a second tier carrier which needs to be open to new business models in order to stay in the game at all.

I’m interested to see what comes next. I expect we’ll hear more by the time the next iPhone is released, likely by fall. I wouldn’t be surprised too if iOS 6, which will be announced at Apple’s World Wide Developer’s Conference next week, contains new and improved features that help marginalize the mobile carriers.

Apple’s Evolving Relationship with Mobile Carriers

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I’ve been thinking about Apple’s relationship to mobile carriers, and the related question of whether their overall marketshare matters for a while. I’m going to take a little time now to outline the evolution of my thinking, and the conclusions I’ve drawn.

It started when I realized how Apple was going to use iCloud to tie OS X and iOS apps together to provide a seamless, pervasive computing environment, which I finally got around to writing about last fall. That led to the realization that although iCloud was designed to be as efficient as possible when moving data around between devices, it was still bringing Apple into conflict with mobile carriers.  Apple was moving towards a future where fast connectivity was always available at the same time the carriers were raising prices and eliminating unlimited data plans.

One of the big innovations of the original iPhone is that Apple “owned” the customer relationship. Yes, people paid AT&T for service, and many people bought their iPhones from AT&T, but Apple controlled the phone, Apple provided the support, and the software updates, and AT&T could not load up the iPhone with their logos or crummy apps. This was unprecedented, and it scared the carriers, and drove them into the arms of Android. Nevertheless, the carriers still held an important piece of territory: your phone number. Numbers are portable, but as long as people are making phone calls and using SMS, its hard to switch carriers often.

However, we’ve seen a rise in services that bypass the carriers. GoogleVoice gives you a carrier independent phone number for SMS and phone calls. Apple FaceTime can use an email address as an identifier, and now, so does Messages, their SMS substitute. Add to those other services, like Skype, Viber, Ping and TextFree. The carriers are slowly but surely being marginalized, but for the time being, they are still in a position to dictate prices, because hardware subsidies and the accompanying service contracts inhibit the formation of a truly competitive marketplace. It’s clear to me though, something is going to have to give.

I think Republic Wireless may be a sign of things to come. Republic offers mobile phone and data service without a contract for $19/month. To take advantage of the service, you need to spend $200 on phone with a special version of the Android operating system that routes voice calls over WiFi when available. When WiFi isn’t available, they use Sprint’s network. It isn’t hard to imagine Apple moving towards something similar.

In broad outline, I think Apple’s goal is to ensure that the mobile carriers are unable to pose a challenge to Apple’s vision for the products and services they want to offer their users. Ideally, they would disappear from the customer’s view all together, becoming suppliers to Apple. How Apple achieves this remains to be seen, but I think the ingredients are:

  • Apple has lots of capital, and they use that capital to gain a favored position with suppliers to ensure that they have a ready supply of key inputs, like flash memory,  high resolution screens, and bleeding edge manufacturing tooling, while depriving competitors of access.
  • Mobile carriers need a lot of capital.
  • Second-tier mobile carriers, like Sprint and T-mobile, risk going out of business if they can’t bring in enough revenue to do the network upgrades they need to stay competitive.  This is why Sprint sells service to carriers like Republic Wireless.
  • T-mobile doesn’t yet have the iPhone in the US.
  • Moore’s law can manifest itself in improvements to price, performance, and power-consumption. So far, much of the progress in the smartphone industry has been channeled towards improving performance. I think we may be reaching a point of diminishing returns, performance-wise.  This may push down pricing to the point that carrier-subsidies are less and less relevant.
These factors could play out a few different ways, but I’ll suggest an illustrative example:
  1. T-mobile starts selling the next iPhone.  Apple gives T-Mobile very favorable terms on payments, allowing T-mobile to invest in their infrastructure. In exchange, T-mobile iPhone customers get unlimited data.
  2. The 2013 iPhone comes at a lower price. Existing carriers are happy that they can reduce their subsidy, and more customers find an unlocked iPhone within reach.
  3. The next iPad can be used with any compatible carrier.
  4. Unlocked iPhones start showing up in the US that can be used on any carrier. The hardware already supports this; when an iPhone 4s is “born” it is capable of connecting to GSM networks like AT&T and TMobile, and CDMA networks like Sprint and Verizon, but when the phone is sold, these capabilities are limited.
  5. Apple starts offering subsidized phones with their own mobile service.

However, since I started writing this post, there have been some new developments, which I’ll post about separately.

iPod Touch and the Kindle Fire

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When Amazon first announced the Kindle Fire, many people heralded it as the first tablet with a chance in the market against Apple’s iPad by virtue of the fact that it was less than half the price, and more portable, with a 7″ screen.

Those predictions were recently validated, with Amazon selling an estimated 5.5M in the first quarter of release. Not bad, but we learned today that Apple sold 15.43 Million iPads, a 111% increase over the same period last year. It is an interesting contrast, but I wondered how the Kindle Fire’s sales compared to those of the iPod Touch.

My reasoning in comparing the two is that the Kindle Fire competes more directly with the Touch than the iPad. The iPad has a 10″ screen. When the first 7″ Android tablets hit the market, Steve Jobs said that Apple had considered smaller tablets, but found that the iPad was the smallest device they could make that allowed a significantly broader range of interactions than the iPhone. You can type on an iPad, as well as create documents, spreadsheets, and presentations. The Kindle Fire, on the other hand, is a lot like a big iPod Touch. The bigger screen is better for reading and browsing the web, and perhaps a little better for viewing movies. On the other hand, the iPod Touch is significantly more portable; it fits in a pocket, the Fire, in a purse.

I wondered how Kindle Fire sales compared to iPod Touch sales. Apple reported that iPod sales were down 21% to 15.4 million, but over 10 million of those were iPod touches. With a little digging, I found that Apple sold about that many iPod Touches during the same period a year prior. So, even without an update, the iPod touch is selling about twice as well as the similarly priced Kindle fire. Of course, the Fire seems to be on an upswing, while the Touch is just holding steady.