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Apple aims to use its own power chips in next year's iPhone

Plan sends share of sole supplier Dialog Semiconductor down some 24%

Apple is keen to boost production of its own semiconductors to better compete in emerging technologies such as artificial intelligence applications.   © Reuters

TAIPEI Apple is developing its own main power management chips to be used in iPhones as early as next year, according to industry sources, as the tech giant's quest for design self-sufficiency continues to shake up its supply chain.

The main power management chip controls an iPhone's charging function, battery management and energy consumption. It is one of the most important and expensive components after core processors, modems and memory chips. "Based on Apple's current plan, as many as half of the power management chips used in iPhones next year will be developed in-house," said one of the sources.

Another person said that while Apple is indeed developing its own power management chips, the time frame is not fixed and could be pushed back to 2019.

The news came as a particular blow for Dialog Semiconductor, the U.K. developer that designs and supplies power management chips for Apple. The company saw its shares dip 19.16% in Frankfurt shortly after the Nikkei Asian Review reported on Apple's latest plans on Nov. 30.

On Dec. 4, Dialog confirmed for the first time that Apple, its largest customer, is capable of designing its own power management chips for iPhones. A company spokesman said that while Dialog does not foresee this having an impact on its business in 2018, it will not know Apple's decision for 2019 until February. Dialog's shares closed that day down more than 24% at a more than three-year low.

According to a Dec. 5 regulatory filing, Beijing-backed chip conglomerate Tsinghua Unigroup indirectly increased its stake in Dialog to 7.15% after the latter's shares crashed. Tsinghua has been aggressively pursuing overseas acquisitions, though the U.S. has blocked some of its attempted takeovers of Western chip-makers due to national security concerns.

Currently, the main power management chips for the iPhone, iPad and Apple Watch are designed exclusively by Dialog, according to Credit Suisse. Apple accounted for 74% of the U.K. company's revenue in 2016.

SHARPENING ITS EDGE Apple is keen to boost its semiconductor capabilities to better compete in such emerging fields as artificial intelligence and to reduce its reliance on external chip designers. Developing more of its own chips would also put Apple in a better position to integrate software and hardware and create products that stand out from those of its rivals, such as Samsung Electronics and Huawei Technologies, according to analysts.

According to the sources, Apple's in-house power management chip will be the most advanced in the industry. That means iPhone users could expect devices capable of delivering better performance with less power consumption.

The new chips will be solely manufactured by Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, according to the industry sources. TSMC has been the sole manufacturer of core processor chips for the iPhone since 2016. The Taiwanese company also currently makes Dialog's power management chips for the device.

Apple was TSMC's No. 1 customer in 2016, accounting for 17% of the chipmaker's overall revenue. That figure will grow to around 20% in 2017 and continue to rise in 2018, according to Bernstein Research.

The U.S. tech giant already designs its own core processors. It also builds its own fingerprint chips, as well as a connection chip used to pair its wireless headphones with other Apple products.

Apple is also building its own graphic processor and will no longer use ones provided by Imagination Technologies within 15 months to two years, the British chip designer said in a statement in April.

That decision was a crushing blow for Imagination. Apple was its No. 1 customer, accounting for over half of its revenue. The chip designer eventually sold itself to Canyon Bridge, a private equity investment fund backed by state-owned Chinese fund Yitai Capital, in September.

TSMC spokeswoman Elizabeth Sun declined to comment on Apple's plans, saying the company does not comment on any particular customer's business.

Apple did not respond to requests for comment.

Nikkei staff writers Debby Wu and Kensaku Ihara in Taipei contributed to this report.

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