Apple Reveals What's Going on Under the Hood

Hullo —Alex Webb here. I’m sheltering from the 90-degree Fahrenheit (32 degrees Celsius) heat under a canopy overlooking the Steve Jobs Theater in Cupertino, curled over my laptop from the spot where the world’s TV crews have been broadcasting since the early hours. Down in the venue itself, Apple CEO Tim Cook unveiled on Tuesday, as expected, a handful of new iPhones, an Apple Watch and TV set-top box, products which could encourage consumers to direct an estimated $86 billion into Apple’s coffers over the holiday shopping period.

There were no real surprises —the high-end $999 iPhone X (following the Latin taxonomy, it’s pronounced ‘ten’) unlocks with a 3-D facial recognition system dubbed Face ID, and boasts an edge-to-edge OLED screen which contributes to another two hours of battery life; the Apple Watch Series 3 offers cellular connectivity, as software chief Craig Federighi demonstrated by calling an employee who was standing on a paddle board in the middle of a lake; and the TV set-top box supports 4K video, as well as the ability to livestream news and sports from apps such as ESPN and, dare I say it, Bloomberg TV.

But as we all recover from the Apple hangover, few people are talking about another key development. Beneath all these telegraphed products, there was one thread that consistently wowed observers: Apple’s advances in semiconductor technology. The Watch Series 3 has a new Apple-designed processor, so that Siri can now talk via the Watch, rather than just providing a written answer. And it’s the same size as its predecessor, yet still has cellular connectivity. I had a chat with Andreessen Horowitz partner Benedict Evans, who pointed out that “if you look at the Android smartwatches that have cellular, they are literally twice the size.”

The iPhone 8 and X have the new A11 Bionic, which includes the ability to do all sorts of clever image processing, augmented reality and artificial intelligence tasks. The AR market alone could be worth $404 billion over the next three years, Morgan Stanley estimates.

And by making better processors and pairing them with increasingly advanced software, Apple makes it ever harder for older iPhones to handle iOS upgrades. A five-year-old iPhone can't operate iOS 11, the latest iteration. Owners of older phones are then forced to upgrade to run the latest software.

The chip innovations seem to answer a question that has been consistently bugging investors —just what exactly is Apple spending so many more R&D dollars on? Research spending has more than doubled since 2013, to $11 billion over the past year. Some ascribed the increase to the car project, but the reality is that it costs some $3 billion to develop a new car platform, and that expense is split over five to seven years. The most capital intensive part of the tech industry is semiconductors. Chipmakers typically devote about 20 percent of revenue to R&D —compare that with the 4.7 percent that Apple spends.

My colleagues wrote an excellent piece last year on Johny Srouji, the slight Israeli who heads Apple’s chips division, which I recommend you check out. The investment in semiconductors seems to be paying dividends, giving Apple a leap on its competitors in key growth markets: wearables, augmented reality and artificial intelligence. Samsung has an impressive semiconductor business, but everyone else (Google and most other phone makers) will struggle to chip away at Apple's lead here.

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And here’s what you need to know in global technology news

From A to B?  Several senior Amazon executives are looking at Boston as a strong candidate for the online retailer’s second headquarters in the U.S. The Seattle-based company announced plans last week to find a second home outside of Seattle, saying that it’s looking for metropolitan areas with more than one million people and the potential to attract and retain technical talent. 

Uber is looking for a new chief legal officer. The current one, Salle Yoo, is leaving the ride-hailing company after helping new CEO Dara Khosrowshahi find a successor. Yoo, who’s been in charge of Uber’s legal efforts for about five years, navigated the company through regulatory challenges but was also at the helm as Uber faced federal probes and a myriad of lawsuits. 

Communicating with satellites is harder than it seems. A Japanese startup called Infostellar is seeking to change that, by getting dish operators to connect and share their antennas.

And, here are some other key headlines from the Apple event, in case you missed them: 

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