Apple squeezes out every drop of innovation from the iPhone, trading in - house R & D for profits.
At this year's Apple press conference, the three mainstays of the iPhone 17/Pro/Pro Max have undergone a complete transformation.
The screen refresh rate has finally overcome the so - called non - existent technical challenges, uniformly upgrading from the long - standing 60Hz to 120Hz. The camera configuration has reached a record high of "three 48MP + one 24MP". What's most noteworthy is probably the new family member, the iPhone Air.
The iPhone Air, with a starting price of 7,999 yuan, has two major highlights:
Firstly, in the price range of around 8,000 yuan, there has long been a lack of models with a single - camera, small - capacity battery, and single - speaker without stereo sound. The iPhone Air fills this market gap.
Secondly, weighing only 165 grams, the iPhone Air has become the model with the highest proportion of self - developed components by Apple.
Three Chips, Three Mountains
The iPhone Air is generally considered a replacement for the Plus series, but its "direct relative" is actually the iPhone 16e that was launched temporarily at the beginning of the year. Both are essentially Apple's "testing grounds for new technology solutions".
iPhone 16e (left) and iPhone 16 (right)
According to Counterpoint's calculations, the proportion of self - developed components in the total BOM cost of the iPhone 16e reached a record - high 40% — for comparison, the "self - developed proportion" of the iPhone 16 is 29%.
A large part of this additional 11% comes from Apple's first self - developed 5G baseband chip, the C1[1]. In other words, the iPhone 16e is positioned to test the waters for the C1 chip. Among mobile phone brands, only Huawei and Samsung have the ability to design 5G baseband chips.
The iPhone Air not only features the successor to the C1 chip, the C1X, but also integrates Apple's self - developed Wi - Fi chip, the N1. In theory, the iPhone Air should have replaced the iPhone 16e as the model with the highest proportion of self - developed components by Apple.
Since 2010, Apple has replaced third - party processors with its own designed A - series processors, gradually achieving "self - control" of processors across all product lines. However, the baseband chip has become a hard nut to crack for Apple.
The baseband chip is to a mobile phone what the brain is to the human body. Simply put, it is responsible for compiling external voice and data signals into baseband codes for transmission and decoding the received baseband codes into voice or other data signals that humans can understand.
The difficulty in developing baseband chips lies in patents. Qualcomm has monopolized over 90% of the core patents of CDMA, the core technology of 3G, becoming an insurmountable barrier. Even as technology has evolved to 4G/5G, due to the need to be compatible with 3G networks, manufacturers have to be constrained by Qualcomm.
Qualcomm has created a bundling sales model for processors and popularized a "proportional licensing" patent fee collection method — charging a patent fee of 3% - 5% of the mobile phone's selling price.
For a mobile phone sold at $500, $15 - 25 in patent fees have to be paid to Qualcomm for each unit sold. In comparison, according to publicly available information, the patent fee standards for Huawei and Nokia's 5G technologies are no more than $2.5 per device and 3 euros respectively (in 2021)[2].
In 2010, Qualcomm and Apple signed an exclusive agreement: Qualcomm pays Apple $1 billion annually in exchange for an exclusive partnership with Apple, while Apple has to pay Qualcomm a patent fee of 5% of the selling price of each Apple phone.
Qualcomm baseband chip in an iPhone
As more and more iPhones were sold, Apple found this agreement increasingly unprofitable. In 2016 alone, Apple paid Qualcomm $2.8 billion in patent fees[3], accounting for about 6% of Apple's annual profit.
Therefore, before the agreement expired, Apple made two preparations. One was to sue Qualcomm in court, and the other was to introduce Intel as a second - source supplier, taking a two - pronged approach.
As expected, Intel let Apple down. According to Cellular Insights' tests, the network performance of the Qualcomm - version iPhone is generally 30% higher than that of the Intel - version. To make the network performance of the two versions comparable, Apple even deliberately reduced the signal strength of the Qualcomm version.
In 2019, Qualcomm had started supplying 5G baseband chips to Samsung. Seeing that Intel was still struggling with 4G, Apple had no choice but to renew the patent fee agreement with Qualcomm for six years.
At that time, Intel was also facing many problems such as difficulties in advanced process development and a decline in server chip market share, being beaten by AMD and TSMC. Apple simply acquired Intel's baseband business and started self - development.
By the end of 2023, there were rumors that Apple would renew its cooperation with Qualcomm for another two years, which once made the outside world suspect that Apple's self - developed baseband chip project had failed. It wasn't until the launch of the iPhone 16e and Qualcomm's admission in an earnings conference that they were "preparing for a breakup with Apple" that it was confirmed that Apple had won the toughest battle.
From a technical perspective, developing a self - developed Wi - Fi chip is a natural follow - up after conquering the baseband chip.
The two are closely related, with many reused technologies such as signal processing IP and radio frequency IP. Qualcomm even bundles its Wi - Fi chip, baseband chip, and SoC for sale. The only tricky issue is the compatibility with various devices and networks, which depends on how open Apple will be in cooperating with ecosystem companies in the future.
The iPhone 16e was a single - item practical exercise for the self - developed baseband chip, while the iPhone Air is Apple's graduation thesis on self - developed chips. So far, the three fortresses of the processor, baseband chip, and Wi - Fi chip have all been conquered.
After spending 15 years to develop three chips, Apple's goal boils down to four words: Cost Reduction and Profit Increase.
Apple's Downturn, Self - Development's Upturn
In 2024, the global smartphone market rebounded with a 7% growth, but Apple ended up in the cold with a 0.9% decline[4].
According to estimates by research institutions, the first - year sales of the standard version of the iPhone 16 released last year were only 55% of the sales of the standard version of the iPhone 15 in the same period. In contrast, Xiaomi's mobile phone sales grew by a staggering 15% in 2024, narrowing the market share gap with Apple to 4%[4].
After years of dominance, Apple's mobile phone business is gradually showing signs of fatigue, mainly due to two reasons:
Firstly, regardless of Apple's design ingenuity and technological pursuit for foldable phones, it has missed the high - growth period of this niche market, and the lost sales won't come back.
In 2023, the global shipment of foldable phones increased by 25%[5], outperforming the sluggish overall market. Huawei and Samsung have been competing from small - fold to large - fold and then to triple - fold phones, while Apple's foldable phone remains a distant rumor.
Secondly, it has become a general consensus in the industry that Apple has under - invested in AI.
The iPhone 16 series launched last year was the first "AI - designed" iPhone to arrive late. Apple even invited a popular HBO actor to shoot a major film to showcase the powerful functions of "AI +" Siri, but was collectively accused by consumers of false advertising and finally had to withdraw the advertisement embarrassedly.
In the advertisement, Bella Ramsey, the star of HBO's "The Last of Us", uses Siri to recall names
No wonder Gurman, a well - known Apple supply - chain journalist from Bloomberg, couldn't help but criticize: "They are having a hard time keeping up with the times[6]."
On the other hand, Apple's huge investment in its car project ended in failure, and the Vision Pro, a technological masterpiece, has struggled to gain market acceptance, becoming a product that even Shenzhen's electronics market has no interest in copying.
Given that Apple can't easily adjust the pricing system of the iPhone, apart from discreet price promotions, increasing the proportion of self - developed components has become an important measure to maintain the profit margin of the mobile phone business.
According to research institutions' teardowns, using the self - developed baseband chip C1 can save $10 in cost per unit of the iPhone 16e[1]. For every 10 million units of the iPhone 16e sold, an additional $100 million in profit can be squeezed out.
The iPhone Air has an additional self - developed N1 chip compared to the iPhone 16e, so it will probably save more than just $10. Moreover, compared to the iPhone 16e, which is $200 cheaper than the standard version, the iPhone Air is $200 more expensive than the standard version of the iPhone 17, resulting in a considerable increase in the profit per unit.
Once the iPhone Air is recognized by the market, it is foreseeable that Apple's self - developed baseband chip will be quickly extended to other models (the N1 is already installed in all models of the 17 series). According to the latest rumors, the successor to the C1X will debut in the iPhone 18 series, which will also make up for the current C1X's inability to support millimeter - wave technology.
Looking back at the rumors over the past few years, the components that Apple intends to self - develop also include CMOS sensors, ISP (image signal processors), and even Micro LED panels.
Considering the currently unshakable market share of the iPhone, it's only a matter of time before the R & D costs are amortized. The cost - effectiveness of Apple's self - developed components is likely to be higher than that of the risky projects of developing an AI - powered iPhone or a foldable phone.
This is in line with Cook's long - standing modus operandi: rather than coveting the seemingly delicious food in the pot, it's better to hold tightly to the reliable job at hand and figure out how to improve it.
The iPhone Air may seem like a bold innovation by Apple and a nod to Jobs' disruptive innovation, but in fact, it may just be another big step in Cook's supply - chain management philosophy.
Epilogue
Gurman, a Bloomberg journalist who has long tracked Apple's supply chain, once summarized the root causes of Apple's lag in AI capabilities: Firstly, a lack of a clear vision; secondly, unclear on how to be different and how to translate goals into practice[6].
This statement seems to explain all the opportunities that Apple has missed over the years.
In July this year, Jeff Williams, the COO who is considered a potential successor to Cook, announced that he would retire by the end of the year. More than half of Apple's current senior executives, including Cook, are over 60 years old.
Perhaps it's a bit too much to ask these senior executives, who are approaching the age of extended retirement, to continue to pursue "disruptive innovation".
References
[1] BoM Analysis for Apple iPhone 16e, Counterpoint Research
[2] Starting from Ericsson's Global Patent Licensing Strategy for Communication Technologies, Technology Industry Consulting Room
[3] FTC's Monopoly Investigation into Qualcomm Reveals the Insider of 2G/3G/4G/5G Patent Fee Collection, EDN China
[4] Global Smartphone Shipments in 2024, Canalys
[5] Global Foldable Phone Shipments Increased by 25% in 2023, TrendForce
[6] How Apple Fell Behind in the AI Race, Bloomberg
This article is from the WeChat official account "Yuanchuan Technology Review" (ID: kechuangych). Author: He Luheng, Editor: Li Motian. Republished by 36Kr with permission.