As vertical integration is making a comeback in tech, Marco Jacobs feels much safer in a world in which companies and countries depend on one another.
“Today we’re announcing our transition to Apple silicon, making this a historic day for the Mac,” Apple CEO Tim Cook announced last summer. The world was stunned. Apple had been shipping their Mac computers with Intel Inside for over a decade. Of course, its iPhones, iPads and Watches had always been based on Apple silicon with Arm CPUs. Sooner or later, these two worlds were bound to clash.
For each Mac sold, Apple sells ten iPhones. This enables the company to invest heavily in anything iPhone-related. Does your laptop have always-on internet? GPS? A great camera? Face unlock? Wireless charging? The iPhone is much more powerful than a laptop in so many ways that it was inevitable – the Mac had to become more like the iPhone.
To switch, the Arm CPUs had to at least match the performance of the Intel processors, which seems tough to achieve. But Arm CPUs have come a long way since the days they were running snakes on tiny monochrome screens. There are still many tiny Arms out there – in our dishwashers, doorbells or electricity meters – but Arm has steadily been climbing the performance ladder. Today, the world’s fastest Fugaku supercomputer has 7 million Arm CPUs inside.
Power is another key issue. The more efficient the chip, the more computation it can deliver per watt. Keeping energy consumption low means no fans, cheaper batteries and no need to connect with a wire to a wall socket.
Then there’s cost, of course. Intel has very healthy margins and makes more than four times per wafer than TSMC. Apple can remove the ‘Intel tax’ from their bill of materials by ordering directly from the chip factories. IC Insights estimates that Apple sells an equivalent of about 10 billion dollars worth of chips to itself each year. Imagine how much they’re saving.
There’s more. Bringing the chip design in-house means control: over the chip architecture, over the chip factory, over the software stack, over on-chip accelerators, over security… You get the gist. Apple has clearly shown that bringing chip design in-house is the way to go.
It wasn’t always like that, though. In the 1990s, the supply chain started restructuring itself away from such vertical integration. Philips used to build its TVs with chips made in its own semiconductor fabs. Then it spun off its semiconductor division, which largely became fabless. Next, fabless companies such as Qualcomm, Broadcom and Nvidia quickly started capturing a significant market share. Not only did they outsource manufacturing, but they also didn’t do all of the semiconductor design themselves either. Instead, they licensed IP from companies such as Arm, allowing them to focus on those areas where they could differentiate. Vertical integration seemed dead for quite some time.
But vertical integration has made a comeback. Tesla presented its own “full self-driving chip” in 2019, causing several automotive OEMs and Tier-1 suppliers to reconsider their hands-off semiconductor strategies. The other members of the Big 5 – Google, Amazon, Facebook and Microsoft – all started designing silicon in-house as well. In China, too, many internet and consumer electronics companies design their own chips.
Vertical integration isn’t just happening at the company level, though. At the country level, governments are also seeking to become more self-sufficient by reducing the reliance on foreign technologies – for instance, by luring semiconductor manufacturers to build fabs in their countries and by heavily funding chip design companies.
Imagine a future where this vertical integration is complete, and each major economic region is fully capable of building everything itself. We wouldn’t need each other anymore, which seems like a very unhealthy climate for international relations. I’d be much more comfortable in a setting where we strongly depend on each other. If you really need someone, you’re very unlikely to pick a fight with them.
There’s no healthy balance today. Of the ten largest publicly traded companies – of which the top 9 are in tech – seven are in the US, three in Asia and none in Europe. My proposal for Europe: pull out all the stops and invest heavily in specific areas to regain the balance. Create a climate where you can grow companies to the power and size of the Big 5. Invest in technologies where we can become market leaders that other countries have to depend on, and don’t shy away from depending on others. Let’s work toward one global and balanced tech community for peace.