"Hardware veterans" and "chip czar" simultaneously promoted, Apple Inc. (AAPL.US) reveals its trump card in the AI competition: SoC.

On Monday, in addition to Apple Inc. appointing hardware chief John Ternus as the new CEO, along with an important personnel promotion that may be equally important for assessing the company's direction. Taking over as hardware chief from Ternus is Johny Srouji, who leads Apple Inc.'s in-house chip development team. Apple Inc. has established a new title for Srouji - Chief Hardware Engineer, effective immediately. Ternus will officially take over as CEO on September 1. Apple Inc. Avoids Massive AI Capital Expenditures With Apple Inc. gradually achieving in-house development of chips for all products such as iPhones, Macs, and AirPods, the combination of Ternus and Srouji can be considered strong. In an interview in 2023, both executives stated that this long-gestating strategy allows Apple Inc. to tightly integrate hardware and software, develop specific features needed for their products, and avoid unnecessary waste of computing power. A deeper analysis of Apple Inc.'s capital expenditure structure reveals that under Cook's leadership, the company leans more towards returning value to shareholders through meticulous supply chain management and high-margin service ecosystems (AppleCare, iCloud, App Store revenue sharing). This contrasts with their Silicon Valley peers taking a markedly different path. So far, Apple Inc.'s strategic approach in the field of artificial intelligence is mainly seen in avoiding enormous capital expenditures; in comparison, tech giants like Microsoft Corporation, Alphabet Inc. Class C, Amazon.com, Inc., and Meta invest billions of dollars annually in building new data centers and equipping them with expensive AI chips. In the crucial step of developing foundational AI models, Apple Inc. has opted to delay in-house development and instead rely on Alphabet Inc. Class C's Gemini model to provide cloud support for their AI functions - including the highly anticipated major upgrade to Siri, expected to be officially launched later this year after facing delays. At the time, Srouji stated: "Because we do not sell chips externally, we can focus on the product itself, allowing us to optimize freely." This scalable architecture allows us to reuse components across different products." Last December, Srouji dismissed rumors of his planned departure, as several other executives left around that time. His new position underscores Apple Inc.'s emphasis on its chip strategy, as the importance of this strategy continues to grow with the increasing application of AI on devices. Under Srouji's leadership, Apple Inc. has started in-house development of more types of chips, reducing dependency on external vendors like Intel Corporation, Qualcomm, and Broadcom Inc. While Ternus has been seen as a frontrunner to succeed Cook (who turned 65 last November) for several months, many analysts believe that appointing Srouji is equally crucial. Analysts at Oppenheimer & Co. wrote in a report on Tuesday: "We believe that appointing Srouji to the newly created Chief Hardware Officer position is Apple Inc.'s most proactive move to date. Apple Inc. not only retains a world-class chip designer, but also ensures the preservation and reinforcement of its chip/hardware/software integration strategy." After stints at Intel Corporation and IBM, Srouji joined Apple Inc. in 2008, less than a year after Apple Inc. launched the first iPhone with a Samsung core processor. A month after Srouji joined, Apple Inc. acquired chip startup P.A. Semiconductor for $278 million, signaling the beginning of Apple Inc.'s journey into customized chips. In 2010, Srouji and his team introduced Apple Inc.'s first custom processor for the iPhone. Today, custom chips have become one of the hottest trends in the tech industry, with companies like Alphabet Inc. Class C, Amazon.com, Inc., Meta, Microsoft Corporation, and Tesla, Inc. all turning to in-house development of AI chips to reduce dependence on NVIDIA Corporation's scarce and expensive graphics processors. In terms of cloud workloads, Apple Inc. relies on Alphabet Inc. Class C's tensor processing units (TPUs), not NVIDIA Corporation's chips. Betting on In-House Chips In the 2023 interview, Ternus said that the "most profound change" at Apple Inc. during his over two decades with the company is the ability to develop so much technology in-house, with chips being the most important aspect. Ternus remarked, "We've always had a great design team and built these beautiful products, but they were constrained by the resources available." One of the most significant moves Apple Inc. made in the later stages of Cook's tenure was to start shifting production to the United States. All major tech giants primarily produce chips at Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's factories in Asia, as well as new factories in Arizona. NVIDIA Corporation recently replaced Apple Inc. as the largest customer of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. Apple Inc.'s growing chip strength includes significant investments in Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's Arizona factory and two new factories in the United States operated by Texas Instruments Incorporated. As part of a $600 billion US investment plan through 2029, Apple Inc. stated in August of last year that it is "leading the construction of an end-to-end chip supply chain in the United States." Executives at Apple Inc. stated in the 2023 interview that their chip team has grown to thousands of engineers working in chip labs across the globe, including in Israel, Germany, Austria, the UK, Japan, and the US. Though Apple Inc. has not yet produced data center chips for running AI workloads in the cloud, some analysts predict that Apple Inc. may collaborate with Broadcom Inc. to develop server chips as early as this year. To date, Apple Inc. has focused almost entirely on AI features on end devices, stating that this strategy offers top-notch security and privacy protection for users and their data. "Their goal is to continue being the best platform for running AI software, and anyone who tests or runs AI programs on Apple Inc. chips agrees that Apple Inc. chips are the best," said Ben Bajarin, CEO of Creative Strategies. Key in-house chips at Apple Inc. include the M series processors for Macs (replacing Intel Corporation processors since 2020) and the core A series chips for the iPhone. Both chips are known as system-on-chips (SoCs). The latest A19 and M5 series chips released by Apple Inc. in 2025 have built-in neural network accelerators for running AI programs on devices. In 2023, Srouji stated that Apple Inc. has an advantage in AI because "we have chips, hardware, software, and machine learning, all united in one team." The company noted that they have integrated a neural accelerator in each GPU core, allowing developers to switch between different tasks faster. Apple Inc. released its initial AI neural network engine in 2017. In terms of modems, Apple Inc. began moving away from dependence on Qualcomm in 2019, spending $1 billion to acquire most of Intel Corporation's modem business shares, following a series of lawsuits settled with Qualcomm. Apple Inc. quietly introduced its first iPhone modem, the C1, in the early 2025 and is expected to release the C1X in the iPhone 18 lineup in September. Bajarin predicts that by the end of next year, all iPhone modems will be produced in-house by Apple Inc. Bajarin said, "Even if they can never quite match Qualcomm in performance, I don't think it will make much of a difference, even on Pro phones. I think it just needs to work well within your coverage area, be fast enough, and not drain the battery." Under Srouji's leadership, Integration Last September, Apple Inc. introduced the N1, its in-house developed wireless chip for iPhones, replacing Broadcom Inc.'s chips. Over the past decade, network chips in AirPods and the Apple Watch have been developed in-house by Apple Inc. Despite this, Apple Inc. will continue to rely on external vendors for many small chips. They obtain key processor architecture licenses from Arm Holdings and other technology licenses from companies like Broadcom Inc. and Qualcomm. They rely on Samsung for memory and companies like Texas Instruments Incorporated for analog chips. In an email to Apple Inc. employees on Monday, Srouji announced that he will integrate hardware development into a unified department, rather than splitting it into engineering and technical departments as it is now. Srouji stated that he will organize the hardware division into five teams: hardware engineering, chip, advanced technology, platform architecture, and project management. Tim Millet, appointed to lead Apple Inc.'s platform architecture team, stated in an interview in September of last year that in-house developed chips are the "magic." "When we have control, we can do things that simply buying commercial chips cannot achieve," he said. During a period of major personnel changes at Apple Inc., Wall Street is questioning its AI strategy, and whether focusing on devices rather than cloud computing is the right choice. The company's stock price has fallen by 2% this year, the worst among all major tech giants except Microsoft Corporation and Tesla, Inc. The interviews with Ternus and Srouji took place in December 2023, about a year after OpenAI released ChatGPT, ushering in the booming era of generative AI. At that time, when asked about concerns about Apple Inc. seeming to lag behind in the field of AI, Srouji stated: "I don't think we're behind." Ternus added with a smile, saying he is "not too worried."