Apple Building the Capability to Design its Own Chips

Apple Inc’s (AAPL) inner workings of the first and second generation iPhones are mostly based on off-the-shelf parts from third-party suppliers. But that scenario is about to change.

According to WSJ – the iPhone and iPod maker is hiring new employees from many different segments of the semiconductor industry, and is building the capability to design its own chips.

Apple recently hired Raja Koduri, who was formerly the chief technology officer of the graphics products group at chip maker Advanced Micro Devices Inc. Mr. Koduri started at Apple this week, following in the footsteps of Bob Drebin, who had held the same title at AMD and is also now working for Apple. Online job postings from Apple describe dozens of chip-related positions it is trying to fill, some with partial descriptions like “testing the functional correctness of Apple developed silicon.”

The Cupertino, Calif.-based company  hopes its new efforts will lead to new exclusive features for its devices. Besides a desire to beat rivals to market with new features, Apple’s shift is also an effort to share fewer details about its plans with outside chip vendors.

Apple’s strategy also marks a break from a long-term trend among most big electronics companies to outsource the development of chips and other components to external suppliers.

Sources familiar with Apple’s plans said they don’t expect internally designed chips to emerge until next year at the earliest.

Last year, Apple acquired P.A. Semi, a designer of low-power microchips, for $278 million. Steve Jobs explained the purchase of the Silicon Valley start-up as a way to acquire expertise and technology to help run increasingly sophisticated software on iPhones and iPods.