Understanding Apple – iPhone 5 is a Screamer!
Malcolm is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple’s (NASDAQ: AAPL) new iPhone 5 is a screamer! According to the highly respected, high-tech blog Anand Tech, Apple’s new A6 chip is smoking the competition not just in sales, but in speed as well.
Apple’s Custom A6 Chip
Apple’s new iPhone 5, which blasted to new pre-order sales, contains a new central chip that it calls the A6. This is smaller, faster and more power efficient than previous chips in it’s A-series. No one knows for sure how the A6 chip is designed, but specialists have made some educated guesses.
The consumer needs to understand that you cannot judge overall performance of a chip simply by its clock speed nor simply by its number of cores. The earlier A5 surprised techies with its performance because it included a more advanced Graphics unit than its competition, for example. The faster you clock a chip, the more power you require. Apple likes to tune its chip designs so that you can tune down the speed a bit in order to conserve power, and therefore use a smaller (read lighter) battery.
More below – but first some results.
According to PrimateLabs.com:
Geekbench provides a comprehensive set of benchmarks engineered to quickly and accurately measure processor and memory performance.
On Sunday, Sept. 16. MacRumors reported that Geekbench tests for the iPhone 5 had been reported. While there is some question as to the authenticity of the report, it was taken as quite likely to be real.
The report diagnosed the processor as having 2 cores and clocked at 1.02 GHz. The Geekbench overall score was given as 1601, showing more than double the speed of the iPhone 4S and even the New iPad.
Anand Tech warns against too close a comparison across systems, but that caveat aside, we will look at a couple. Comparing to other systems, these are a bit under the top 2 Android competitors, and ahead of the rest. I just show the results for the top three: Samsung Galaxy S3, Asus Nexus 7, and Asus Transformer Prime. They all run ARM based processors, and Google’s (NASDAQ: GOOG) Android operating system.
Anand Tech was able to run SunSpider tests on an iPhone 5 review sample. They are therefore certain of the results – assuming that the review is the same as a production run model.
Here the differences were remarkable.
That is to say – it tests theoretical web browser rendition speed. The nearest competition was Lava XOLO X900, a phone using Intel (NASDAQ: INTC) Atom processor (Intel Atom Z2460, 1 core at 1600 GHz - based on x86 not ARM), running Android OS. The iPhone 5 beat it by roughly 25%. The Galaxy S3 was next in line, and even further behind. (See chart below the fold.) The score are:
It should be noted here that with the exception of Lava’s Atom processor, the others all have four cores and run at 1300-1600 GHz in comparison to the A6 having only 2 cores and running at 1GHz. So how does Apple do this?
It seems they have created their own custom cores, they have included more powerful graphics processors, and increased certain internal data channels in order to increase the throughput.
In 2008 Apple bought P.A. Semi, and in 2010 it purchased Intrinsity, both chip design companies. They are forging their own, personal path in chip design. They do this because the want to set their own design priorities. Essentially, Apple wants to customize their processing chips to meet their own concepts of what is important for each device they run. (The iPad chip is different from the iPhone chip, largely to deal with the vastly increased display size.)
This, of course, does not bear directly on the success of the iPhone - people buy them for many reasons, speed not necessarily the most important. It is, however, a major factor in the overall user experience of the iPhone. Geeks may hang on these results, but the average user does indeed respond to the responsiveness. It is a real part of the phone's popularity. As people have already seen, the popularity is overwhelming with online orders already delayed for 3 - 4 weeks.
About 46 percent of Apple’s revenue comes from iPhones and related products, and perhaps 60% of profits. ASPs for the iconic phones run in the $625 range.
Before the announcement on the 12th, most analysts were viewing sales of anywhere from 4 - 10 million iPhone 5 units by the end of the month. With the huge rush in pre-sales, analysts have been putting their estimates more to the high end. Many have now increased calendar year 2012 estimates by 5 - 10 million (with less than 4 months left). This would mean incremental earnings of up to $6.24 Billion. It is hard to refine this to an EPS, but with the high gross margin (iSuppli estimates of build cost has been about $207 for 16 GB model), a lot will go to the bottom line. (I don't think operating expenses will change significantly with increased sales.)
Many analysts are raising their earnings estimates, although I think they are once again conservative. The exception, perhaps, would be Brian White, at Topeka Capital Markets, whose one year target is $1,111.
Apple, like all the smartphone and tablet manufacturers, have to deal with priorities that conflict. You want the most powerful possible, but also the smallest; long battery life, but light weight. Apple wants to design creatively. With the new A6 they seem to have created a chip that keeps up with or even bests the competition, yet is miserly on its resource consumption. This does not directly drive sales, but adds to the perception that the iPhone is best of breed and furthers both satisfaction and sales, the later of which increases the bottom line.
Malcolm Manness has a Masters degree in Computer Science, and worked for 14 years in development, technical publications and software quality assurance. He has been investing for 20 years. Currently, he does writing, and FileMaker Pro programming on contract.
His short fiction can be found (under pseudonym J. Seunnasepp) at http://50centflash.com/.
==== Understanding Apple series
You may love Apple and their products, or hate them to the core, but you cannot deny that Apple now has the highest market cap of any company, their products are trend setters, and currently they are trading at rather low multiples, especially regarding forward earnings.
Warren Buffet has the maxim: “Invest in what you know!” So, for those who want a unique perspective on Apple’s success, I have a series of articles Understanding Apple. I hope you will find them helpful and provocative.
Let me know what you think.
Previous article: Understanding Apple – iPhone 5, A Note on Supply Constraints.
NOTE: No sooner did I finish this then PC Magazine ran a story:
iPhone 5 Benchmarked: The Fastest Smartphone in the Land
Source: Anand Tech
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