Apple to make ARM chips for iPhone?

Forbes dissects the management change announced Tuesday at Apple’s iPhone division, concluding that Apple plans to make its own iPhone processor chips. It’s interesting speculation.

What we know for sure is that Tony Fadell — the founder of iPod engineering who Fortune calls “The man who made the iPod” — is stepping down as head of SVP for the iPod division. (Fadell replaced Nextie and Friend-of-Steve Jon Rubinstein. Update 10pm: Fadell is being paid $300K/year to stay around as a “special advisor.” I’d guess he either left before Apple was ready — legitimate “personal reasons” — or they want to pay to keep him from working for others.)

Fadell is being replaced by Mark Papermaster, VP for blade server development at IBM. Apparently IBM is suing to enforce a non-compete, and original speculation (before his appointment to head iPod/iPhone R&D) was that he was being hired to make OS X-based Xserve boxes.

Now that Papermaster’s new role is out, pundits point to his earlier role as a PowerPC microprocessor architect. Last June, CEO Steve Jobs said the ex-PA Semi engineers are making “system-on-chips for iPhones and iPods.”

Brian Caulfied of Forbes claims that the tea leaves all point in one direction: Papermaster’s CPU expertise, the purchase of PA Semi, its sourcing of ARM-based processors from cellphone rival Samsung, the availability of ARM reference designs and fabs to make them.

Caulfied has put 2+2 together, but right now it’s not clear if he has come up with 3 or 4 or 6. ZDNet wonders whether Apple wants Papermaster to run Freescale, which seems even more improbable. Still, PA Semi was purchased for some reason, and competing with Intel in laptop CPUs is not among them.

Once upon a time, I claimed that Apple’s iPod and iPhone were an example of open innovation: Apple sourcing outside rather than using its 1990s-era NIH.

It appears I was wrong: open innovation (sourcing outside components) was an entry strategy for the iPod and iPhone, but the goal was always vertical integration. With iTunes, iTunes Music Service, OS X on the iPhone and now the new mystery chip, Apple will be more vertically integrated than it ever was on the Apple II or Macintosh.

Steve Jobs has always had a proprietary view of the ecosystem: we’re creating the value, and we want to capture as much as possible. Although Jobs was forced out of Apple in 1985, this culture lived on for a decade afterward. I experienced it first hand helping HP make color inkjet printers that competed with Apple’s dot matrix printers.

When he Jobs returned to Apple in 1997, he killed Apple’s only authorized cloning experiment, and with it both killed two startup companies and also alienated a Fortune 500 multinational and key Apple supplier (Motorola).

As elsewhere, Jobs is swimming against the tide. In the PC business, IBM went away from vertical integration and made Bill Gates and Andy Grove rich while eventually failing as a PC maker. Many cell phone makers (like HTC and Motorola) are procuring their OS on the open market, but there are two important exceptions: RIM (with its BlackBerry) and Nokia (with its decision to purchase Symbian).