After yesterday’s announcement of ‘new’ iPad, which replaces the ‘new’ iPad launched in March, the tech world is wondering why Apple decided to kill one of its flagship products just after six odd months. Let’s call these tablets iPad 3 and iPad 4 for the convenience and dig a little deeper to see what could have prompted Apple to break hearts of millions who bought iPad in the last few months.

I feel the change is purely a business decision. And it has to do with the supply chain, something that is the forte of Apple CEO Tim Cook. After all, iPad 3 was selling very well. It was the numero uno tablet in the market and would have continued to be a bestseller until next summer when Apple would likely debut the next iPad. Competition is definitely not a reason why Apple kicked out iPad 3 from its product line up and brought in iPad 4.

What about the hardware. There is some talk that iPad 3, because of its high resolution screen, requires better hardware. You gotta be kidding! iPad 3 has the industry-leading hardware. It is a beast. More importantly, the game developers, who are likely to push hardware to maximum, are still playing catch up. Benchmarks from AnandTech reveal that the GPU and CPU in iPad 3 are quite capable of handling the modern day tablet usage. GPU is especially fast. Similarly, I don’t think Apple introduced iPad just because it wanted to put better wireless chip or the Lightning connector in it. It could have easily waited for another five months to introduce this stuff in iPad 4.

No, the real reason is something else. And if you know how much Tim Cook values the supply chain and how much he focuses on cutting cost so that fat margins can be maintained, you will realize the iPad 4 debuted because Apple now has A6 processor.

Again, here the key is not the processor or its capabilities. The key is how this processor is made.

A5X, which powers iPad 3, is made using Samsung’s 45nm fab process. A6 and A6X, which powers iPad 4, are made using Samsung’s 32nm fab process.

Let’s do some math.

We know, again from a chart on AnandTech, that A5X has a die size of 163mm. This chip is humongous. Some of Intel’s Ivy bridge chips that power desktops are smaller than A5X.

These processors are basically part of a round silicon wafer – almost every modern fab uses wafers with 300mm – diameter. Chip impressions are etched on wafers, transistors are carved and then chips are sliced and packaged. Here is a good video from AMD that shows the process.

Now, let’s assume that yields are 100%, which means all chips made from a wafer work. So, how many chips one can fit inside a wafer? It depends on the size of the chip. In the case of A5X, it is 163mm. Let’s assume that A5X is a square chip (actually it is not). This means its sides are around 13×13. Using a formula here on this page, it means Apple can get a maximum of around 366 chips from a 300mm wafer.

But we had assumed 100% yield. This never happens in a fab. Never.

Even if the process is mature, which means engineers have got the hang of it and know it inside out, yields are not perfect. Also, the bigger is the die size, the worse is the yield. Chances of getting bad chips increase disproportionately as the size of chip increases. In semiconductor industry yields of around 80% are achievable on mature node. The 45nm is definitely a mature node.

This means Apple is likely baking around 290 chips from each 300mm wafer.

Now, let’s shift to A6X. We don’t know the size of A6X. We only know that it is made using 32nm, which means the transistor size has reduced. We also know it has A6 chip and probably PowerVR543 MP4 with increased clocks.

What we know for sure is that die size of A6 is 97mm. If we account for an additional core of VR543, the die size of A6X is likely to be around 110mm to 115mm.

Though it is not an exact figure, let’s see what we can get with it. Using the same old formula, we find that Apple can get around 540 A6X chips from a 300 wafer.

I feel the yields at 32nm are good for Apple. It is making A5 (revision 2) on the node for quite some time now. It is making A6 and shipping millions of iPhones. Yields can easily be around 80%.

Assuming yields are similar for A6X, Apple is likely getting around 430 chips from a 300nm wafer. This is around 140 more chips compared to what Apple was getting with A5X.

I am sure that 45nm must be cheaper compared to 32nm. The fabs with newer nodes cost more initially because companies like Samsung and TSMC have to recoup their investment. But I feel the difference of around 130 chips matters a lot to a company like Apple, which has huge volumes. Even savings of a few dollars here and few dollars there can add to millions.

A supply chain expert like Tim Cook will not let go of this golden opportunity to cut cost.

Samsung’s 32nm fab is the reason why Apple has launched iPad 4. Still don’t believe. Take a look at Apple’s iPad line-up.

iPad 4 – A6X made on 32nm

iPad 2 – A5R2 made on 32nm

iPad Mini – A5R2 made on 32nm

iPad 3 – A5X made on 45nm

Which is the odd one out? iPad 3, and not iPad 2, gets the boot!

There could be some other reasons that may have helped Apple take the decision to introduce iPad 4. Lightning connector is one of them. But the main reason is the saving the company is probably making by switching to a 32nm chip.

Update: When iPad debuted with A4 chip, iSupply did a tear-down to calculate the cost of the tablet. It estimated that the cost of A4 was $19.50. A4 was a chip with a die size of 53mm. As the size of the chip increases so does the cost. It works like this, hypothetically. A 300mm wafer costs $5000. If you can get 200 chips from it, the cost of each chip is $25. If you can only get 100 chips, the cost is $50.

A5X was over three times bigger than A4. Apple must have been spending around $50 to $60 on A5X. A6X on the other hand is likely to be around 110mm. If we apply the same rules, I feel it must cost something like $35. This are all hypothetical figure but my point is that Apple could be saving at least $20 to $25 with each A6X.

Now, let’s add it. In Quarter 3, Apple sold 17 million iPads. It’s fair to assume that in the Quarter 4 and Quarter 1 of the next financial year it will sell around 35 million iPads. Even if Apple is saving $20 with each A6X chip, which I feel is very conservative, it is likely to save $700 million in just two quarters. This may not feel like a big number given Apple’s other bigger numbers, but $700 million is lot of money.

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