Samsung’s homegrown GPU will add to woes for merchant chip industry

Apple’s increasing tendency to develop core iPhone components inhouse has caused significant problems for many of its current or former suppliers, but the issue is not confined to the iDevice maker. There is a general move, by major handset vendors, to assert control over pricing and availability in their supply chains, and bring key components inhouse. Samsung and Huawei already have their own processors and modems, and Samsung is reportedly developing a GPU (graphical processing unit) for its smartphones.

All this reduces the addressable market for component specialists and makes them reliant on more cost-sensitive handset makers which lack the inhouse development resources of the big three. These will demand similar levels of performance for lower cost, and shift the buying market heavily to China, and to a lesser extent India, where the major tier two OEMs are found.

Apple definitely set the trend. Qualcomm has to share iPhone modem slots with Intel these days, amid legal battles, and reports that Apple might work with MediaTek too, or even commission its own mobile chip, in future.

Smaller firms suffer more of course. Imagination Technologies’ break-up and sale was directly triggered by Apple’s decision to design a GPU (graphics processor unit) inhouse for the iPhone from scratch, rather than using Imagination’s cores. Shares in suppliers of displays and their connectors, Bluetooth chips, accelerometers and many other components go up and down, according to whether they get Apple deals, and then, if they do, whether that particular iPhone lives up to volume expectations.

One example, recently highlighted by Bloomberg, is AMS, a German provider of 3D sensing components. Like some other firms, it has heavy exposure to Apple. Five years ago, AMS pushed into 3D sensing technology, and saw sales almost double in 2017, most of that attributable to a deal to supply the iPhone X.

However, that high end iPhone has not generated sales to the massive levels expected, and so orders have been unpredictable for AMS, with knock-on effects on its profitability. It had staffed up its manufacturing facilities in anticipation of an iPhone X boom, and when that did not live up to expectations, there was an impact on pre-tax profit, which is falling below analyst predictions and has grown less quickly than revenues. This is also affected by Apple’s squeeze on pricing, which it can impose more ruthlessly when a vendor has few other customers to turn to.

However, pre-tax profit as a percentage of sales could rise from “mid-teens” currently to 25% in the fourth quarter, if an iPhone demand peak materializes, according to Hauck & Aufhaeuser Privatbank analysis, and after that, some Android phonemakers are likely to start adopting 3D sensors.

Although AMS has predicted that its Q3 revenue will be above analyst forecasts, it is a case study of a company which is over-reliant on a single, quixotic customer. Although there are indications that Apple will use AMS sensors in other iPhone models in future,  the smaller company has promised a strategic review, hinting that this would include ways to reduce its dependence on Apple, perhaps by strengthening its offering for other handset makers, and also for other markets such as the car industry. 3D sensors will be important in self-driving vehicles.

Over at Samsung, GPU providers will be fearing the same fate as Imagination, as the Korean firm – the world’s largest smartphone vendor – says it has designed a mobile GPU which delivers leading performance per watt (the key metric for power-constrained, yet high performance devices). To achieve its power efficiency, the architecture bundles multiple instructions into a group, which can then be executed in a single cycle.

Analyst Jon Peddie was briefed on the new GPU and said its novel architecture would make it applicable to non-mobile devices too, even supercomputers. “This is really a big deal — it’s the first new GPU design in 10 years,” he wrote in a blog post.

It will not be alone – Apple’s homegrown GPU should appear in its next generation of iPhones, while Intel is planning a discrete PC GPU for 2019, having hired the former head of AMD’s graphics group, Raja Korduri.

Peddie said the Samsung design “could put it on par with Apple … This design is so good, they could deploy it in every platform. If I owned it, it would be in everything including cockpits and supercomputers.”

There are no timescales for the chip, though it is believed to have been taped out and likely to appear first in Samsung’s own Exynos mobile system-on-chip. The company has not decided whether it will license the technology, or offer it on a merchant basis.

The design is being led by Chien-Ping Lu, a graphics veteran who started his career at Nvidia. MediaTek hired him to design a mobile GPU, but the Taiwanese firm decided to continue to use licensed cores from ARM and Imagination. Lu then moved to Intel for a year before joining AI start-up NovuMind. Less than a year ago he left there to join Samsung.