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Intro 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 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 no-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. The iPhone 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 are 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 iPhone chart right now looks something like this. Now, most people don't think about this much, but it's 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 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 Peak Optimization to have 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 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, 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 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 technology, will fill those orders using the displays they know how to make. Multiple Sourcing 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 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 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 them had fast storage chips, Some of them 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 is, After seeing these headlines, What happens when we go from Apple's displays being slightly customized to being completely customized? Because now there's some rumors that Apple is trying to move from OLED to microLED, and stepping up the design and the quality of their displays and their watches and phones in the next few generations. So when I first read into this, I thought it meant, like, nothing. Like, Apple doesn't manufacture MicroLED Pretty much anything. They are a world-class design firm, and they do a lot of research design and development, but then at the end of the day, When they 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 development with the technology in their 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 of 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 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 know which companies Apple will be going to manufacture them. Apple's still not gonna make the display themself, and, theoretically, it could be the same List of manufacturers, but word on the street is they're trying to strategically drop a certain Samsung, So we'll see. Radios 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 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 it's the same supply chain story of, oh, no, if you're Qualcomm or Broadcom, You don't like that future,
but also the possible efficiency gains, Because right now there's a bunch of radios taking up different spaces in the phone, taking up a bunch of power in the phone, and ideally consolidating all of them into one chip is 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 are going to 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 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.