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Apple’s soaring stock price over the past two decades has been driven by its iconic consumer devices. It started with the iPod and iMac. Then came the iPhone and iPad. And more recently, the Apple Watch and AirPods.

But there’s a lot more to the biggest U.S. company by market cap than just gadgets. At its Silicon Valley headquarters, in a non-descript room filled with a couple hundred buzzing machines and a handful of engineers in lab coats, Apple is designing the custom chips that power its most popular products.

Apple first debuted homegrown semiconductors in the iPhone 4 in 2010. As of this year, all new Mac computers are powered by Apple’s own silicon, ending the company’s 15-plus years of reliance on Intel.

“One of the most, if not the most, profound change at Apple, certainly in our products over the last 20 years, is how we now do so many of those technologies in-house,” said John Ternus, who runs hardware engineering at Apple. “And top of the list, of course, is our silicon.”

That change has also opened Apple up to a new set of risks. Its most advanced silicon is primarily manufactured by one vendor, Taiwan Semiconductor Manufacturing Company. Meanwhile, smartphones are recovering from a deep sales slump, and competitors like Microsoft are making big leaps in artificial intelligence.

In November, CNBC visited Apple’s campus in Cupertino, California, the first journalists allowed to film inside one of the company’s chip labs. We got a rare chance to talk with the head of Apple silicon, Johny Srouji, about the company’s push into the complex business of custom semiconductor development, which is also being pursued by Amazon, Google, Microsoft and Tesla.

“We have thousands of engineers,” Srouji said. “But if you look at the portfolio of chips we do: very lean, actually. Very efficient.”

Unlike traditional chipmakers, Apple is not making silicon for other companies.

“Because we’re not really selling chips outside, we focus on the product,” Srouji said. “That gives us freedom to optimize, and the scalable architecture lets us reuse pieces between different products.”

Apple’s head of silicon, Johny Srouji, talks to CNBC’s Katie Tarasov at Apple headquarters in Cupertino, California, on November 14, 2023.

Andrew Evers

Powering iPhones since 2010

Srouji came to Apple in 2008 to lead a small team of 40 or 50 engineers designing custom chips for the iPhone. A month after he joined, Apple bought P.A. Semiconductor, a 150-person startup, for $278 million.

“They’re going to start doing their own chips: that was the immediate takeaway when they bought P.A. Semi,” said Ben Bajarin, CEO and principal analyst at Creative Strategies. With its “inherent design focus,” Bajarin said, Apple wants “to control as much of the stack” as possible.

Two years after the acquisition, Apple launched its first custom chip, the A4, in the iPhone 4 and original iPad.

“We built what we call the unified memory architecture that is scalable across products,” Srouji said. “We built an architecture that you start with the iPhone, but then we scaled it to the iPad and then to the watch and eventually to the Mac.”

Apple’s silicon team has grown to thousands of engineers working across labs all over the world, including in Israel, Germany, Austria, the U.K. and Japan. Within the U.S., the company has facilities in Silicon Valley, San Diego and Austin, Texas.

The primary type of chip Apple is developing is known as a system on a chip, or SoC. That brings together the central processing unit (CPU), graphics processing unit (GPU) and other components, Bajarin explained, adding that for Apple there’s also a neural processing unit (NPU) “that runs the neural engine.”

“It is the silicon and all of the blocks that go on to that silicon,” Bajarin said.

Apple’s first SoC was the A series, which has advanced from the A4 in 2010 to the A17 Pro announced in September of this year. It’s the central processor in iPhones, as well as some iPads, Apple TVs and the HomePod. Apple’s other major SoC is the M series, first released in 2020, which now powers all new Macs and more advanced iPads. That product is up to the M3 line.

Launched in 2015, the S series is a smaller system in package, or SiP, for Apple Watch. H and W chips are used in AirPods. U chips allow communication between Apple devices. And the newest chip, the R1, is set to ship early next year in Apple’s Vision Pro headset. Dedicated to processing input from the device’s cameras, sensors and microphones, Apple says it will stream images to the displays within 12 milliseconds.

“We get to design the chips ahead of time,” Srouji said. He added that his staffers work with Ternus’s team “to exactly and precisely build chips that are going to be targeted for those products, and only for those products.”

The H2 inside the 2nd generation AirPods Pro, for instance, enables better noise cancellation. Inside the new Series 9 Apple Watch, the S9 allows for unusual capabilities like double tap. In iPhones, the A11 Bionic in 2017 had the first Apple Neural Engine, a dedicated part of the SoC for performing AI tasks totally on-device.

The latest A17 Pro announced in the iPhone 15 Pro and Pro Max in September enables major leaps in features like computational photography and advanced rendering for gaming.

“It was actually the biggest redesign in GPU architecture and Apple silicon history,” said Kaiann Drance, who leads marketing for the iPhone. “We have hardware accelerated ray tracing for the first time. And we have mesh shading acceleration, which allows game developers to create some really stunning visual effects.”

That’s led to the development of iPhone-native versions from Ubisoft‘s Assassin’s Creed Mirage, The Division Resurgence and Capcom‘s Resident Evil 4.  

Apple says the A17 Pro is the first 3-nanometer chip to ship at high volume.

“The reason we use 3-nanometer is it gives us the ability to pack more transistors in a given dimension. That is important for the product and much better power efficiency,” Srouji said. “Even though we’re not a chip company, we are leading the industry for a reason.”

Apple’s first 3-nanometer chip, the A17 Pro, enables ray tracing and other advanced graphics rendering for improved gaming on the iPhone 15 Pro and Pro Max, shown here in Cupertino, California, on September 12, 2023.

Katie Tarasov

Replacing Intel in Macs

Apple’s leap to 3-nanometer continued with the M3 chips for Mac computers, announced in October. Apple says the M3 enables features like 22-hour battery life and, similar to the A17 Pro, boosted graphics performance.

“It’s early days,” said Ternus, who’s been at Apple for 22 years. “We have a lot of work to do, but I think there’s so many Macs now, pretty much all Macs are capable of running Triple-A titles, which is not what it was like five years ago.”

Ternus said that when he started, “the way we tended to make products is we were using technologies from other companies, and we were effectively building the product around that.” Despite a focus on beautiful design, “they were constrained by what was available,” he said.

In a major shift for the semiconductor industry, Apple turned away from using Intel’s PC processors in 2020, switching to its own M1 chip inside the MacBook Air and other Macs.

“It was almost like the laws of physics had changed,” Ternus said. “All of a sudden we could build a MacBook Air that’s incredibly thin and light, has no fan, 18 hours of battery life, and outperformed the MacBook Pro that we had just been shipping.”

He said the newest MacBook Pro with Apple’s most advanced chip, the M3 Max, “is 11 times faster than the fastest Intel MacBook Pro we were making. And we were shipping that just two years ago.”

Intel processors are based on x86 architecture, the traditional choice for PC makers, with a lot of software developed for it. Apple bases its processors on rival Arm architecture, known for using less power and helping laptop batteries last longer.

Apple’s M1 in 2020 was a proving point for Arm-based processors in high-end computers, with other big names like Qualcomm — and reportedly AMD and Nvidia — also developing Arm-based PC processors. In September, Apple extended its deal with Arm through at least 2040. 

When its first custom chip came out 13 years ago, Apple was unusual as a non-chip company trying to make it in the cutthroat, cost-prohibitive semiconductor market. Since then, Amazon, Google, Microsoft and Tesla have tried their hand at custom chips.

“Apple was sort of the trailblazer,” said Stacy Rasgon, managing director and senior analyst at Bernstein Research. “They sort of showed that if you do this, you can have a stab at differentiating your products.”

Apple’s senior director of hardware validation Godfrey D’Souza shows off an M3 SoC in an Apple chip lab in Cupertino, California, on November 14, 2023.

Sydney Boyo

‘Modems are hard’

Apple isn’t yet making every piece of silicon in its devices. Modems, for example, are one big component the company has yet to conquer on its own.

“The processors have been remarkably good. Where they’ve struggled is on the modem side, is on the radio side in the phones,” Rasgon said. “Modems are hard.”

Apple relies on Qualcomm for its modems, although in 2019, the two companies settled a two-year legal battle over intellectual property. Soon after, Apple bought the majority of Intel’s 5G modem business for $1 billion, in a likely move to develop its own cellular modem. That hasn’t happened yet, and in September, Apple signed on with Qualcomm to supply its modems through 2026.

“Qualcomm still makes the best modems in the world,” Bajarin said. “Until Apple can do as good of a job, I have a hard time seeing them fully jump to that.”

Apple’s Srouji said he couldn’t comment on “future technologies and products” but said “we care about cellular, and we have teams enabling that.”

Apple is also reportedly working on its own Wi-Fi and Bluetooth chip. For now, it has a fresh multibillion-dollar deal with Broadcom for wireless components. Apple relies on third parties like Samsung and Micron for memory.

“Our aspiration is the product,” Srouji said, when asked if Apple will try to design every part of its chips. “We want to build the best products on the planet. As a technology team, which also includes the chips in this case, we want to build the best technology that would enable that vision.”

To deliver on that objective, Apple will “buy off the shelf” if it means the team can focus “on what really, really matters,” Srouji said.

Regardless of how much silicon Apple eventually designs, it still needs to manufacture its chips externally. That requires massive fabrication plants owned by foundry companies like TSMC.

More than 90% of the world’s advanced chips are made by TSMC in Taiwan, which leaves Apple and the rest of the industry vulnerable to the China threat of invasion.

“There is obviously a lot of tension around, like, what would plan B be if that happened?” Bajarin said. “There isn’t another good option. You would hope that Samsung is also competitive and Intel wants to be there. But again, we’re not right now. It’s really all at TSMC.”

Apple is at least looking to bring some of that manufacturing to the U.S. It’s committed to becoming the largest customer at TSMC’s coming fab in Arizona. And on Thursday Apple announced it will be the first and largest customer of the new $2 billion Amkor manufacturing and packaging facility being built in Peoria, Arizona. Amkor will package Apple silicon produced at TSMC’s Arizona fab.

“We always want to have a diversified supply: Asia, Europe and the U.S., which is why I think TSMC building fabs in Arizona is great,” Srouji said.

Finding talent

Another concern is the shortage of skilled chip labor in the U.S., where advanced fabs haven’t been built for decades. TSMC says its Arizona fab is now delayed to 2025 because of a lack of skilled workers.

Whether or not it has to do with a shortage of talent, Apple has seen a slowdown in the release of new chips.

“Generations are taking longer because they are getting harder and harder,” Srouji said. “And the ability to pack more and get power efficiency is also different than 10 years ago.”

Srouji reiterated his view that Apple has an advantage in that regard because “I don’t need to worry about where do I send my chips, how do I target a larger customer base?”

Still, Apple’s actions underscore the competitiveness in the market. In 2019, Apple chip architect Gerard Williams left to lead a data center chip startup called Nuvia, bringing some Apple engineers with him. Apple sued Williams over IP concerns, before dropping the case this year. Qualcomm bought Nuvia in 2021, in a move to compete in Arm-based PC processors like Apple’s.

“I can’t really discuss legal matters, but we truly care about IP protection,” Srouji said. “When certain people leave for certain reasons, that’s their choice.”

Apple has additional macro challenges in its core business because smartphone sales are just recovering from their lowest levels in years.

However, demand for AI workloads is leading to a surge in orders for silicon, especially for GPUs made by companies like Nvidia, whose stock has jumped more than 200% this year tied to the popularity of ChatGPT and other generative AI services.

Google has designed a tensor processing unit for AI since 2016. Amazon Web Services has had its own AI chips for the data center since 2018. Microsoft released its new AI chip in November.

Srouji said his team at Apple has been working on its machine learning engines, the Apple Neural Engine, since years before it was launched in the A11 Bionic chip in 2017. He also pointed to embedded machine learning accelerators in its CPU and “highly optimized GPU for machine learning.”

Apple’s Neural Engines power what it calls “on-device machine learning features” like Face ID and Animojis.

In July, Bloomberg reported that Apple built its own large language model called Ajax and a chatbot called Apple GPT. A spokesperson declined to confirm or deny the accuracy of the report.

Apple has also acquired more than two dozen AI companies since 2015.

When asked if Apple appears to be falling behind in AI, Srouji said, “I don’t believe we are.”

Bajarin is more skeptical.

“It’s doable on Apple’s last year chip, even more capable on this year’s chip with M3,” Bajarin said, regarding Apple’s position in AI. “But the software has got to catch up with that, so that developers take advantage and write tomorrow’s AI software on Apple Silicon.”

He anticipates improvements, and soon.

“Apple had an opportunity to really get on that from day one,” Bajarin said. “But I think everyone expects it’s coming in the coming year.”

Watch the video to learn more.

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Nvidia briefly surpasses $2 trillion in market cap during intraday trading

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Nvidia briefly surpasses  trillion in market cap during intraday trading

Nvidia CEO Jensen Huang speaks onstage during The New York Times Dealbook Summit 2023 at Jazz at Lincoln Center in New York City on Nov. 29, 2023.

Slaven Vlasic | Getty Images

Nvidia briefly surpassed $2 trillion in market cap during intraday trading Friday following the company’s rosy earnings report Wednesday — but it was short-lived.

After rising earlier in the day, shares of Nvidia were down about 1% at 11 a.m. ET. Nvidia stock closed up 16% Thursday.

Nvidia posted $22.10 billion in revenue for its fiscal fourth quarter, a 265% increase from a year ago and above the $20.62 billion expected by analysts polled by LSEG, formerly known as Refinitiv. Nvidia reported $12.29 billion in net income during the quarter, up a staggering 769% from $1.41 billion last year.

The company has benefited from the tech sector’s insatiable demand for artificial intelligence capabilities over the past year. Nvidia makes the pricey graphics processors for the servers that power large AI models.

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Nvidia said it expects $24.0 billion in sales in the current quarter, surpassing the $22.17 billion expected by analysts.

“Fundamentally, the conditions are excellent for continued growth,” Nvidia CEO Jensen Huang said during the company’s quarterly call with investors Wednesday.

— CNBC’s Kif Leswing contributed to this report.

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AI can ‘disproportionately’ help defend against cybersecurity threats, Google CEO Sundar Pichai says

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AI can 'disproportionately' help defend against cybersecurity threats, Google CEO Sundar Pichai says

Google CEO Sundar Pichai speaks in conversation with Emily Chang during the APEC CEO Summit at Moscone West on November 16, 2023 in San Francisco, California. The APEC summit is being held in San Francisco and runs through November 17.

Justin Sullivan | Getty Images News | Getty Images

Munich, GERMANY — Rapid developments in artificial intelligence could help strengthen defenses against security threats in cyber space, according to Google CEO Sundar Pichai.

Amid growing concerns about the potentially nefarious uses of AI, Pichai said that the intelligence tools could help governments and companies speed up the detection of — and response to — threats from hostile actors.

“We are right to be worried about the impact on cybersecurity. But AI, I think actually, counterintuitively, strengthens our defense on cybersecurity,” Pichai told delegates at Munich Security Conference at the end of last week.

Cybersecurity attacks have been growing in volume and sophistication as malicious actors increasingly use them as a way to exert power and extort money.

Cyberattacks cost the global economy an estimated $8 trillion in 2023 — a sum that is set to rise to $10.5 trillion by 2025, according to cyber research firm Cybersecurity Ventures.

A January report from Britain’s National Cyber Security Centre — part of GCHQ, the country’s intelligence agency — said that AI would only increase those threats, lowering the barriers to entry for cyber hackers and enabling more malicious cyber activity, including ransomware attacks.

“AI disproportionately helps the people defending because you’re getting a tool which can impact it at scale.

Sundar Pichai

CEO at Google

However, Pichai said that AI was also lowering the time needed for defenders to detect attacks and react against them. He said this would reduce what’s known as a the defenders’ dilemma, whereby cyberhackers have to be successful just once to a system whereas a defender has to be successful every time in order to protect it.

“AI disproportionately helps the people defending because you’re getting a tool which can impact it at scale versus the people who are trying to exploit,” he said.

“So, in some ways, we are winning the race,” he added.

Google last week announced a new initiative offering AI tools and infrastructure investments designed to boost online security. A free, open-source tool dubbed Magika aims to help users detect malware — malicious software — the company said in a statement, while a white paper proposes measures and research and creates guardrails around AI.

Pichai said the tools were already being put to use in the company’s products, such as Google Chrome and Gmail, as well as its internal systems.

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“AI is at a definitive crossroads — one where policymakers, security professionals and civil society have the chance to finally tilt the cybersecurity balance from attackers to cyber defenders. 

The release coincided with the signing of a pact by major companies at MSC to take “reasonable precautions” to prevent AI tools from being used to disrupt democratic votes in 2024’s bumper election year and beyond.

Adobe, Amazon, Google, IBM, Meta, Microsoft, OpenAI, TikTok and X, formerly Twitter, were among the signatories to the new agreement, which includes a framework for how companies must respond to AI-generated “deepfakes” designed to deceive voters.

It comes as the internet becomes an increasingly important sphere of influence for both individuals and state-backed malicious actors.

Former U.S. Secretary of State Hillary Clinton on Saturday described cyberspace as “a new battlefield.”

“The technology arms race has just gone up another notch with generative AI,” she said in Munich.

“If you can run a little bit faster than your adversary, you’re going to do better. That’s what AI is really giving us defensively.

Mark Hughes

president of security at DXC

A report published last week by Microsoft found that state-backed hackers from Russia, China, and Iran have been using its OpenAI large language model (LLM) to enhance their efforts to trick targets.

Russian military intelligence, Iran’s Revolutionary Guard, and the Chinese and North Korean governments were all said to have relied on the tools.

Mark Hughes, president of security at IT services and consulting firm DXC, told CNBC that bad actors were increasingly relying on a ChatGPT-inspired hacking tool called WormGPT to conduct tasks like reverse engineering code.

However, he said that he was also seeing “significant gains” from similar tools which help engineers to detect and reserve engineer attacks at speed.

“It gives us the ability to speed up,” Hughes said last week. “Most of the time in cyber, what you have is the time that the attackers have in advantage against you. That’s often the case in any conflict situation.

“If you can run a little bit faster than your adversary, you’re going to do better. That’s what AI is really giving us defensively at the moment,” he added.

Germany has been benefitting from a 'peace dividend' for years, defense minister says

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Ride-hailing giant Grab posts first profitable quarter, announces $500 million share buyback

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Ride-hailing giant Grab posts first profitable quarter, announces 0 million share buyback

A attendee walks past a banner with a Grab logo before a bell-ringing ceremony as Grab begins trading on the Nasdaq, in Singapore, on Thursday, Dec. 2, 2021.

Ore Huiying | Bloomberg | Getty Images

SINGAPORE — Grab posted its first-ever profitable quarter, raking in $11 million in profit, the Southeast Asian ride-hailing giant said in its fourth-quarter earnings report Thursday.

This compares with a $391 million loss recorded in the same period a year ago. The boost was “primarily due to the improvement in Group adjusted EBITDA, fair value changes in investments, and lowered share-based compensation expenses,” the company said.

Revenue for the quarter hit $653 million, exceeding LSEG analysts’ estimates of $634.86 million.

Losses for full year 2023 came to $485 million, down 72% from $1.74 billion a year ago.

In addition to ride-hailing, the company also provides financial services like payments and insurance, as well as deliveries for food, groceries and packages.

“We exited [2023 with] mobility exceeding pre-Covid levels. We are seeing a very strong demand in the mobility space,” Grab CFO Peter Oey told CNBC in an exclusive interview on Friday, adding that tourism is “growing very much.”

“If you look at the deliveries business, we have another record 13% year-over-year growth. We have now more users on our platform also at the same time. So we have really strong momentum,” he said on CNBC’s “Squawk Box Asia.”

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Grab announced Thursday it would be repurchasing up to $500 million worth of class A ordinary shares for the first time.

Grab was largely unprofitable during its years of operation, having amassed billions of dollars in losses since its inception in 2012.

In the initial years of business, tech startups tend to prioritize growth over profitability, which usually means burning a lot of cash. But with global macro uncertainties slowing growth, they have been forced to renew their focus on profitability and be more prudent with costs.

During the fourth quarter, total incentives — which include partner and consumer incentives — were further reduced to 7.3% of total value of goods sold, Grab said in its report. That’s compared to 8.2% in the same period a year ago “as we continued to improve the health of our marketplace.”

Grab had been doling out incentives to attract drivers and passengers to its platform but that’s tapering now as the company moves to drive up profitability.

On whether Grab would reach a time where it wouldn’t need to incentivize people to stay on the platform, Oey said incentives will “always be a lever” for the business.

“I don’t think we’re going to see a world where there’s no incentive whatsoever,” he told CNBC, adding that incentives help “to make sure we have enough supply” of drivers and attract price-sensitive customers.

For 2024, Grab expects revenue to come in between $2.70 billion and $2.75 billion, lower than LSEG analysts’ consensus of $2.8 billion.

Grab’s shares closed 8.41% lower on Thursday. Its share price has plummeted 75.8% from its $13.06 opening price in December 2021, when the firm first listed on the Nasdaq.

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