Now Hear This!

Apple is hiring chip gurus and the big question industry watchers are asking is why. I, as many others do, suspect the company is readying a chip design group and is rightfully doing so by recruiting some of the semiconductor industry's best and brightest for its team.

Let's review: According to reports, Apple recently hired Raja Koduri, a former CTO of AMD's graphics products group. Koduri follows Apple's hire of Bob Drebin, who had held the same position at AMD. The two engineers also both came from ATI's former Imageon handheld graphics division, which AMD sold off to Qualcomm at the beginning of the year.

And in January, Mark Papermaster was clear to work at Apple after the ex-IBM engineer fought a non-compete agreement. Papermaster has extensive experience in PowerPC architecture and just began work at Apple last week, leading the company's iPod and iPhone hardware engineering teams as senior VP of devices hardware engineering.

Prior to Papermaster's initial hiring at Apple, back in the fall of 2008, the company bought PA Semiconductor, a fabless chip designer that specialized in low-power PowerPC microprocessors. (IBM's major objection to the employment change was that post its PA Semi buy Apple was considered an IBM competitor given the company's PowerPC background and that Papermaster's extensive knowledge of IBM's work could lead to the inappropriate disclosure or use of confidential IBM information.)

The buy is now approximately a year old and Apple has done little with the acquisition. At the time of purchase, industry analysts were not surprised and noted PA Semi's power efficiency focus, a boon for Apple, which itself is in a position to sell tens of millions of iPhones and Wi-Fi enabled iPod devices.

According to a recent Wall Street Journal report, Papermaster, Koduri, and Drebin are hardly lone semiconductor soldiers at Apple. Apple currently employees more than 100 people with chip design expertise on their resumes, the WSJ reports.

Apple has also been recruiting design engineers via its Web site's job listings for sometime now. Current posted positions include a senior ASIC design engineer and a senior design verification engineer.

To be true, I have not spoken to Apple nor do I expect the super secretive company to return my calls, but all signs point to such a design expansion of Apple's focus. Having such a chip design team in-house provides Apple with further exclusivity in its technologies, better ability to test, less royalties and markups to pay, and, perhaps most important to a trend-setting company like Apple, more overall control of its end product.

Looking at the situation today, I would agree with industry speculation at the time of the PA Semi buy that any Apple chip design activity would focus on its iPhone and iPod lines, at least at first. Not only are sales of its Mac computers down slightly (although nowhere near the declines in the traditional PC market), but all reports say that Apple is happy with its relationship with Intel as a Mac chip supplier. 

Still, the company could take on Nvidia in its computers. Its recent hires of the former AMD execs put a focus on graphics chip experience and Apple did take some heat when Nvidia chips failed in its Macs last July.  Further, Apple has enough cash on hand to drive its own graphics development. Such work could also be extremely valuable in its portables, especially if Apple moves into gaming on its iPhone and iPods as some industry watchers (including EDN's Brian Dipert) suspect it will. Apple's reported recent hire of Richard Teversham, the former Xbox Europe senior director of business, insights and strategy, also lends credence to this theory. And Drebin's credit as creator of the GameCube's graphics card should be noted here, too. 

Perhaps Apple-branded chips will turn up in iPhones, rumored tablets/netbooks, and MacBooks over the next year or so, but we'll just have to wait and see because, as I state above, the company is super secretive.

It should be noted that while Apple may look more "chipper" by the week, such a move could send some current Apple semiconductor suppliers into a chipper, shredding their sales. Remember PortalPlayer? Soon after Apple dumped it as a partner in 2006, the company's profits went under and it was acquired by Nvidia. 

If Apple were to go ahead with such a plan, it would face many hurdles, but the move would also represent a shift in industry trends. Such a move would be counter to general practices that have seen more and more OEMs go outside their own walls for chips, especially as the economy squeezes resources. And such an expansion, if it were to occur, offers further proof that even in the worst economies, companies that have proven records of innovation and marketing success grow. Apple's recent blockbuster quarterly results illustrate that nicely, with sales and profit up as its portables continue to attract consumers.

What do you think? Is Apple getting ready to take a big bite into the chip market? What would that mean for its suppliers and the chip industry overall? Share your thoughts below.