Apple's innovation bad news for Intel...

Apple's A4 chip, unveiled last week as part of its iPad, shows how chief executive Steve Jobs is extending control over the company's hardware at the expense of Qualcomm and Intel.

Instead of buying an off-the-shelf part, Jobs had Apple's engineers design the A4 chip, giving them influence over its cost and functions, said Will Strauss, an analyst at Forward Concepts, a researcher in Tempe, Arizona.

"He wants his own ecosystem and doesn't want to be beholden to anyone," Strauss said. "It's both maximising his margins and maximising his control."

Apple's decision to design its own part is a blow to Intel, which is trying to win a foothold in mobile devices with its Atom product, said Jim McGregor, an analyst at research firm In-Stat in Scottsdale, Arizona. Apple will probably use a version of the A4 in future models of the iPhone, he said.

"Every step that Apple has taken, from the iPhone to the tablet, has been directly in the sights of Intel, and where it has been wanting to go with Atom," McGregor said. "Intel has been completely rebuffed."

The iPad, a touch-screen tablet computer, will go on sale by March, Jobs said at last week's debut of the device.

Intel, the world's largest chipmaker, and Qualcomm, the largest maker of chips for phones, are trying to create a new market for devices that bridge the gap between computers and smartphones.

Goldman Sachs estimates that Apple will sell six million iPads this year. By contrast, the market for mobile phones will reach one billion units and PC sales will be about 300 million.

Still, the iPad is a high-profile attempt to crack a market that Qualcomm and Intel have set their sights on, said Jagdish Rebello, an analyst at research firm ISuppli.

"Intel would have wanted to get into this device, Qualcomm would have wanted to get into this device," Rebello said. He also expects Apple to use the A4 in future models of the iPhone.

"IPad is powered by our own custom silicon," Jobs said at the iPad's introduction. "We have an incredible group that does custom silicon at Apple."

Apple's Mac computers run on processors made by Santa Clara, California-based Intel, whose chips power more than 80 per cent of the world's PCs. The iPhone uses a Samsung Electronics-manufactured processor that was partially designed by Apple engineers, Rebello said.

"Apple's done a nice job innovating with their vertically integrated device," said Bill Calder, an Intel spokesman. "But we remain confident that the Intel architecture will fuel broad growth in a wide range of intelligent devices from tablets to smartphones."

At the Consumer Electronics Show (CES) in January, Intel announced that LG Electronics, the world's third-largest phone maker, will use one of its processors in a new smartphone to debut this year.

Qualcomm, based in San Diego, has held talks about supplying products for use in Apple's iPhone, chief executive Paul Jacobs said in November. At CES, Qualcomm said computer makers Hewlett-Packard and Lenovo Group will make scaled-down laptops that use its Snapdragon processor.

"We are very excited about the opportunities in the mobile computing space," Bertha Agia, a Qualcomm spokeswoman, said.

"Qualcomm's Snapdragon platform has 15 manufacturers that are developing more than 40 Snapdragon-based products."

The A4 processor costs about US$15 ($21) to make, according to Broadpoint AmTech. That would make it the most expensive semiconductor component in the iPad, behind memory chips.

The total cost of the iPad's parts is US$188.50 for the cheapest model, which will retail for US$499, Broadpoint said.

In April 2008, Apple bought closely held semiconductor designer PA Semi. That company's expertise in low-power chips probably explains the iPad's 10-hour battery life, said Strauss from Forward Concepts.

Making a processor run quickly without draining the battery is the biggest challenge Intel faces in cracking the mobile market, Strauss said.

While he estimates that Apple will sell only two million iPads this year, being left out of an attention-grabbing device is the biggest loss for Intel, he said.

"The only loser there is that Intel doesn't have another feather in its cap," he said.

- BLOOMBERG