Last week, Bloomberg’s Mark Gurman reported that Apple is going to put its own chips in the data center, and a few days later the Journal confirmed that with its own reporting.These reports were initially met with a high degree of skepticism (not least from the Journal which later turned around on the subject). Many said that Apple was “not a cloud company” and did not see the point in them pursuing this path. This all struck us as odd, we know Apple has been looking at this for years. So here we want to lay out some of the reasons we think Apple would want its own data center chip.
For starters, Apple is building a chip because they can. In a world of constrained leading edge capacity, Apple is TSMC’s largest customer and can presumably get all most of the capacity they want. If they actually had a good use for the chip, now is the time. Everyone else is scrambling, Apple could conceivably build up a big head start.
It should also be clear that Apple is very much a provider of cloud services – they literally have a product called iCloud. Part of the confusion here rests in the fact that Apple says very little about what it does with its data centers. They never make it entirely clear how they deliver their cloud services, which seems to be some combination of Google Cloud, Azure and maybe some AWS, but also their own data centers. When we talk about the “hyperscalers”, we silently assume that Apple is one of those ten largest data center operators. And if all the other hyperscalers are designing their own chips, it makes sense that Apple would as well.
Of course, the big question is what is Apple going to do with that capacity. This is 2024, so the simple summary is of course they are going to do AI.
The more nuanced answer is where this gets more interesting. We have long bemoaned the lack of compelling consumer uses for generative AI, and we often add that the industry needs Apple to show everyone else what can be done. We are not convinced that Apple has in fact figured out, but given all the rumors that next month’s WWDC is going to heavily focus on AI, we are intrigued.
So let’s assume Apple has in fact come up with some impressive AI applications, or at least applications Apple thinks are impressive. We know that they have been working on AI for years – from Siri’s steadily improving speech recognition, to under the hood machine learning improvements to photo and video images, to the simple fact that the A series phone processor has had a “Neural Engine” since 2018. They brought transformer support to their M-Series chips before Chat GPT. They launched that support so soon after those models became widely popular, that it seems likely that had been working on the idea for some time already. Apple has a capable AI team.
Moreover, it seems likely that team has built its own foundational model. Apple of course owns all of its critical software, and a huge amount of data (i.e. they know what you do with your phone). We are not clear how Apple trained this model, we suspect they used Nvidia like everyone else. But as Apple rolls out its AI apps, they are going to need to do a lot of inference. They will run some of that on-device (aka “The Edge”, aka consumers pay for the capex and opex), but they will also run some amount of inference in the cloud.
From all the reporting, it is not entirely clear what chips Apple will be using in the data center. We have seen reports they will use their M2 CPU, their M4 CPU, or a brand new chip called ACDC (Apple Chips in Data Center, which would bet the clear winner in 2024’s chip naming competition). Whatever they end up using, they will benefit from having a common software layer connecting the cloud and edge inference. Many companies have talked about having this kind of offering, Apple is likely to be the first to put one in large scale production. Having everything connected in this way offers meaningful power savings, but also probably allows for a higher degree of privacy, a big marketing theme for the company. We imagine the pitch will go something like “have your phone run amazing AI, and only you will see your data”. So there are clear benefits to having their own silicon along the entire software chain.
That leaves one question, how will Apple position this in their marketing? As we mentioned above, Apple never talks about their data centers, but now they might be willing to as it coneys a message that benefits them. In fact, given the amount of press coverage coming out on the subject, we suspect that Apple may have deliberately leaked a bit of this to make sure we are paying attention.
When we will boil it all down, it looks a lot like Apple has an interesting story to tell about the breadth of its AI offering. This is not just an AI Mac or an AI iPhone, but a complete system offering some form of differentiated AI offering. If this is true, and we may be wrong, it will be one more example of Apple stealing a beat on the competition, because this is something that its competitors will struggle to match.
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