Apple vs Microsoft - the chips are down

Should you buy your chips ready-made, or cook them yourself? Depends whether you're Apple or Microsoft.

Let's take Microsoft first. It has its own Xbox Semiconductor Design Group, which among other things designed the graphics processor for the Xbox 360. Unfortunately for the group – and Microsoft – this is the component that's being fingered as the culprit behind the Red Ring Of Death. The chip dissipated too much power, ran far too hot and frequently expired. According to EE Times (apologies for the long quote):

"The Xbox 360 recall a year ago happened because "Microsoft wanted to avoid an ASIC vendor," said Lewis [Bryan Lewis, chief analyst at Gartner]. Microsoft designed the graphic chip on its own, cut a traditional ASIC vendor out of the process and went straight to Taiwan Semiconductor Manufacturing Co. Ltd., he explained. But in the end, by going cheap--hoping to save tens of millions of dollars in ASIC design costs, Microsoft ended up paying more than $1 billion for its Xbox 360 recall. To fix the problem, Microsoft went back to an unnamed ASIC vendor based in the United States and redesigned the chip, Lewis added. ([...] most likely the former ATI Technologies [...]) Asked the moral of the story, Lewis said: "Had Microsoft left the graphics processor design to an ASIC vendor in the first place, would they have been able to avoid this problem? Probably. The ASIC vendor could have been able to design a graphics processor that dissipates much less power."

Lewis goes on to conclude that systems houses have no business designing their own chips, and should leave it to external companies that know what they're doing and have plenty of capacity at the moment.

Logical enough. But Apple's now giving out a bit more information about its purchase of PA Semi, the processor design company it bought recently amid speculation that it's looking to cut Intel out of some of the action. At the time, I thought it might be for some custom high-performance circuitry aimed at new appliances, but since then there have been rumours that PA Semi was looking for a white knight, was friendly with Apple anyway and may even have had projects on the go for Cupertino. In which case, Apple had stuff to rescue and saw an offer too good to refuse.

Apple is indeed going to design its own chips, but Intel shouldn't be too worried: they're going to be for places Intel doesn't yet go. “PA Semi is going to do system-on-chips for iPhones and iPods,”, Steve Jobs told the New York Times. Given that one of the iPhone's big problems is its cost – estimates range between $400 and $460 wholesale – keeping Apple reliant on the handset discount model and the power in the hands of the networks, then this looks plausible. You get the best cost reduction by making chips that are precisely tuned to the needs of your particular hardware. If they work.

So, who's right? The two cases aren't directly comparable. PA Semi has exactly the sort of real-world experience bought in a commercial environment that Microsoft's design group most keenly missed. But that ends now: one of the big problems of having an in-house group is that it doesn't get exposed to lots of different demands by lots of different companies, And other parts of the company feel compelled to use that group instead of getting a more appropriate deal outside: valuable cues are missed, politics blossoms and competitive advantage is lost. There are places and times when having your own chip-designing expertise is a good thing – Sinclair Research's use of Ferranti's ground-breaking ULA in the ZX81 was a good example -- but I'm not sure either are common at the moment.

I'm with Gartner on this one. The Red Ring Of Death should hang above every technology company CEO's desk – a baleful anti-halo, warning to stick to the knitting.