Apple Biting into Chips?

Apple’s rumored move into the chip-making business for the iPhone could change things for ARM Holdings, which currently supplies at least three processor cores for the device.

“[Apple] has been trying to control every part of the ecosystem… and now they want to control the main guts of the device,” says Philip Solis, principal analyst with ABI Research. “If Apple creates their total processor design and instruction set, something totally proprietary, that could hit ARM.”

However, Solis thinks it’s more likely that Apple will create an ARM-based processor instead of fabricating one from scratch.

“They would probably license from ARM. ARM just wouldn’t be selling the actual physical processors, just the IP right,” says Solis. The bulk of device manufacturers have moved beyond the ARM chips currently embedded in the iPhone, upgrading to ARM’s next-generation processors or tweaking their own ARM-based designs.

Though ARM has weathered the global economic downturn better than some of its competitors, its sales fell 10 percent in the first quarter as industry activity continued to slow. Any internally-designed Apple chips would be unlikely to emerge until 2010 at the earliest and it is unclear how such as move would affect ARM’s sales.

An ARM spokesman who asked not to be identified refused to comment. No other reply from the company came before press time.

Reports surfaced this week in The Wall Street Journal that Apple has been building up a chip-making team, acquiring Silicon-Valley startup PA Semiconductor and posting job listings for dozens of chip-related positions. The company already has hired Raja Koduri, former chief technology officer of the graphics products group at chipmaker Advanced Micro Devices. Apple previously hired Bob Drebin, who had worked at Advanced Micro Devices under the same title as Koduri.

Apple likely would use the chips to reduce power consumption and improve graphics, according unnamed sources cited in the Journal.

The general state of the industry continues to pose a challenge for semiconductor companies, and ARM is no exception. Global semiconductor sales fell almost 30 percent in the first quarter, though handsets and netbooks continue to be bright spots, according to a report from the Semiconductor Industry Association.