00:00It's great and there's stuff going on. What is going on? These guys have been working together
00:04for a while. Yeah, well, speaking of phones, Broadcom, they make chips, all sorts of chips.
00:11And Apple and Broadcom have worked together for decades at this point on wireless components.
00:17So for a long time to get your phone to connect to Wi-Fi or to connect to Bluetooth,
00:21you were using what's called a combined Wi-Fi plus Bluetooth chip made by Broadcom. And Apple
00:26was the biggest buyer of this chip. It was the biggest revenue source for Broadcom. But a few
00:31years ago, Apple decided it's going to go on its own path. They're going to develop their own
00:35Wi-Fi plus a Bluetooth module. It's called the N1. It's now in the latest iPhones, latest iPads,
00:41latest Macs. They're going to bring it to more devices. And so Broadcom got designed out of the
00:45iPhone. But starting in 2023, in order to keep Broadcom around, they created a technology. It's
00:52called an RF filter. It's a component that works with the cellular modem. Because as you also know,
00:57Apple has dropped Qualcomm for the most part, and is now building their own modem. So they're there
01:02for this small filter component. But now the partnership is expanding again to something
01:07really timely and really important. That's ASIC chips. Now, ASIC chips is a type of circuit,
01:12a type of silicon that's really geared towards a single purpose. Now, what is a big piece of machinery
01:19that you need that has a single purpose? An AI server. It's all about AI. And so they didn't
01:24come out and say this in their press release. They said, this is for multiple new generations
01:28of Apple products. If you consider an Apple intelligence and Apple AI server to be a product,
01:34then fine. But what I'm telling you is that's what it is.
01:37Wait, so are they now all of a sudden Apple going to be spending a lot of money and kind
01:41of building
01:41out their AI expert? Like, help me understand what this means.
01:43So for Apple intelligence, there's really two ways that this AI processes. There's on-device AI
01:51models, and there's cloud models. Now, the cloud model has now been split up starting later this
01:57year as part of the new Siri. You have the Apple cloud, which they call private cloud compute.
02:01These are Mac chips, the M2 Ultra chips that they released in 2023. Those chips are running in servers
02:09to power the AI features in the cloud, the more advanced AI features. As an aside, they're splitting
02:15that. So you're going to have the Apple servers, and then you've got Google, you've got NVIDIA,
02:19et cetera, et cetera. But just think of it this way. There's on-device and there's cloud.
02:23For cloud, the chips are starting to get a little dated. The M2 is from three years ago.
02:29Apple's now working on a new server chip. It's called Baltra, right? They name all these chips
02:34internally after islands, maybe the island Tim is at. And they are working on this new chip.
02:41They're going to deploy it 2027, 2028. And the ASIC technology in there has been developed
02:47by Broadcom. And they have multiple generations of these new AI servers planned. And what's unique
02:54about these AI servers is that the current version is the same as that top-end Mac chip that you
02:58have
02:58in the Mac Studio. That's their most powerful desktop. The one they're going to be deploying at the
03:02end of 2027 has four times the power of the M5 Ultra, which is coming to the Mac desktop later
03:11this year. And Broadcom is going to help power that. And Apple's got a long roadmap ahead of
03:15subsequent servers. So they are still doing a lot on-device for AI, but Apple knows that the real
03:22goods are what's powered by the cloud. And so that's why you need that new technology.
03:26Okay. So this was Apple needed Broadcom's help or Broadcom needed a new partnership with
03:32Apple.
03:34Apple needed Broadcom to get this up and running. But Broadcom certainly, for its bottom
03:42line, probably needed a new relationship with Apple because Apple was their biggest growth driver
03:49and revenue source. And they had been designed out for Wi-Fi and Bluetooth. And so kudos to Broadcom,
03:56and good for their shareholders and investors and what have you, that they were able to figure out
03:59a way to get back Apple's business for something that's really pertinent right now.
04:04Mark, what does it mean in terms of the Apple AI story too?
04:07Well, what you're seeing right now is a shift more to cloud-based processing versus the on-device
04:11processing. On-device is great for processing, but it's not so great for functionality. Cloud is much
04:16more performant.
04:18Okay. Does that mean also then Apple's going to be spending more in terms of...
04:22I believe that Apple will be spending more on AI. I believe Apple will be spending considerably
04:27more on AI, but nowhere near what these hyperscalers and the metas and Googles of the world are spending
04:32because they do have that split. And a lot of it is going to be relying on outside vendors and
04:39outside parties. So they do a lot of in-house server infrastructure and they do a lot of licensing
04:44or paying other data farms for this.
04:46Is it safe to say that when Apple says, I need outside data farms or whatever, they're going to
04:52get it? Or are they competing with everybody else?
04:56They're competing. Traditionally, Apple has had extreme amounts of pricing power. They've had
05:01extreme amounts of power over the supply chain and different partners. And what you've seen from
05:05the memory shortage is that Apple just does not have that clout or credibility that they once had.
05:09They're just one of the guys now. They're not at the front of the line.
05:13It's pretty remarkable.
05:14Let's talk about product. Before the show started, I had mentioned that I saw there was an iPhone
05:20that was added to the America 250 time capsule, which is just so pertinent and telling about
05:27kind of the influence that Apple has. But if this were maybe three years from now, what products
05:34would they be putting in? That's my segue here into what are they planning? I will tell you,
05:40but the first thing I will say, you know, that phone's going to explode, right? Like having
05:45a lithium ion battery in a very warm and closed space for the next 250 years.
05:52Yeah. You can't even have it in a checked bag in an airplane.
05:55Fair, fair. But that phone's going to explode. I would guess within two decades, three decades.
06:02So somebody didn't think this through? Maybe it doesn't have a battery in it?
06:05Maybe they protected it?
06:05I don't know. Maybe they took... No, it does because they said, I read the document for it
06:09that Apple put together. They said, we've preloaded the Notes app with a bunch of information about
06:13Apple's history and whatnot. So let's say it doesn't explode, which it will. The technology
06:18is going to be so different in 250 years that, I don't know, are there going to be outlets
06:23in 250 years? Is it going to be the same? USB-C is not going to be a thing? One
06:28way or another,
06:28this thing is not turning on, and they'll be lucky if it doesn't destroy everything else
06:32in the box that it's in. Anyways, if they were going to be packing this thing in three years,
06:38perhaps we would see smart glasses in there, which is Apple's biggest priority right now.
06:44It's a program codenamed N50. These are in-house design, in-house branded, supposedly fashionable
06:52smart glasses with oval-shaped, vertically oval-shaped cameras, a computer vision camera,
06:59a standard camera. They're looking to compete with Meta for something they believe internally
07:04is higher quality, better made, better battery, better components. They think it looks nicer.
07:11I don't know how they're going to beat the ability to partner with brands like Prada and Ray-Ban,
07:16all the SLR or Luxottica brands that Meta has in its back pocket. But the Apple brand is still
07:20very strong. And the goal there isn't just to release smart glasses. It's to do to the glasses
07:26market, what the Apple watch did to the watch market. 10 years ago, the watch market basically
07:31had, I would say, three tiers, right? You had the bottom tier of watches where you can buy watches
07:37between, I don't know, 20 bucks and 100 bucks. Mid-tier watches where you can buy watches between
07:44200 and $800. Then you have the super high tier, the Rolexes, the Patex, the APs, the world,
07:49tens of thousands, hundreds of thousands of dollars north of that. That market actually
07:53got hotter, as we know, through COVID. The $20 to $80 watch market really wasn't impacted
07:59like the low-end Timexes of the world. But that mid-tier market, right? Those all got absolutely
08:06crushed. People don't go out and buy watches under $1,000 anymore that are not smart watches.
08:12And so what Apple wants to do is do the same thing to glasses.
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