In bypassing a traditional chip maker like Intel and creating its own custom ARM-based processor for the iPad, Apple has likely incurred an investment of about $1 billion, a new report suggests.
After reading the NYTimes article linked to within this article I can only conclude it’s a very generalized statement that it costs $1Billion to create a custom chip. The exact quote from the NYTimes article author Ashlee Vance is: “Even without the direct investment of a factory, it can cost these companies about $1 billion to create a smartphone chip from scratch.”
Given that is one third the full price of building a chip fabrication plant, why so expensive? What is the breakdown of those costs. Apple did invest money in PA Semiconductor to get some chip building expertise (they primarily designed chips that were fabricated at overseas contract manufacturing plants). Given Qualcomm has created the Snapdragon CPU using similar cpu cores from ARM Holdings Inc., they must have $1Billion to throw around too? Qualcomm was once dominant in the cell phone market licensing its CDMA technology to the likes of Verizon. But it’s financial success is nothing like the old days. So how does Qualcomm come up with $1Billion to develop the Snapdragon CPU for smartphones? Does that seem possible?
Qualcomm and Apple are licensing the biggest building blocks and core intellectual property from ARM, all they need to do is route and place and verify the design. Where does the $1Billion figure come into it? Is it the engineers? Is it the masks for exposing the silicon wafers? I argue now as I did in my first posting about the Apple A4 chip, the chip is an adaptation of intellectual property, a license to a CPU design provided by ARM. It’s not literally created from ‘scratch’ starting with no base design or using completely new proprietary intellectual property from Apple. This is why I am confused. Maybe ‘from scratch’ means different things to different people.