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Wednesday, June 11, 2008, 07:00 am PT (10:00 am ET)

Steve Jobs: it's time we design our own iPhone and iPod chips

The market potential for proprietary mobile processor designs from chip makers like Samsung Electronics and Intel Corp. were dealt a considerable blow earlier this week when Apple chief executive Steve Jobs revealed that his company will start designing its own breed of chips to power the next-generation of Multi-Touch devices that won't be available to rivals.

South Korea-based Samsung has long been central to Apple's handheld efforts (1, 2, 3), supplying the primary SoCs — or system-on-chips — for everything from the iPod nano to the iPhone. Meanwhile, Intel has been in the running to assert its Atom processors at heart of a larger iPhone-like Multi-Touch internet tablet that's also under development at the Cupertino-based electronics maker, and was at one time believed to have sealed the deal.

Unfortunately for the two industry heavyweights, Apple appears to have other plans to further innovation around its Multi-Touch platform that will reduce its reliance on chip designs conceived largely by third parties. In an interview following his keynote address at the Worldwide Developers Conference on Monday, Jobs told the New York Times' John Markoff that his firm's recent $278 million acquisition of a small fabless semiconductor company called P.A. Semi was an investment in the future of its handheld products.

"PA Semi is going to do system-on-chips for iPhones and iPods," he said, ending speculation as to the precise motives behind the April buyout. The initial uncertainty stemmed from the fact that PA Semi was best know for chips based on IBM's Power technology, an architecture that Apple abandoned two years ago when it moved its Mac line of personal computers to Intel's architecture.

But as Jobs explained to the Wall Street Journal two months ago, Apple has always been integral in the design of chips used in iPhones and iPods even though they were developed by third parties like Samsung. It was to this end that the value in PA Semi emerged, not for its existing technologies but for its expertise in designing embedded processors to do almost anything the iPhone maker wants them to do.

For Apple, the advantages of bringing PA Semi in-house are many. In particular, it will afford the company to innovate in a way going forward that will differentiate its handheld products from a growing array of competitive devices that will be left to rely on technologies available to the broader industry. It will also allow the company, which is synonymous with secrecy, to keep a tighter lid on its intellectual property and future product plans.

Still, there's hope for chip makers like Samsung and Intel in that that Apple will still need to rely on a third party to manufacture the chips it develops on its own, given that PA Semi doesn't own a fabrication facility. It's also possible that the PA Semi team could build onto chip designs initially conceived by one of the semiconductor giants. That's of course assuming Jobs and Co. don't have an even bigger plan brewing to somehow serve as its own SoC manufacturer.