Something is rotten in the state of Apple

Apple recently announced a set of (rather large) retention payments for some engineers. (I assume that these are senior engineers.) The payments are in the form of restricted stock units which vest over a four-year period. Apple is making these payments to prevent employees from leaving for other companies. It's not clear, but these appear to be one-time payments. (That is, this is not a new, recurring payment to employees.)

This is not a good idea.

If employees are leaving Apple, that is a problem. And the problem has two (for this post) possible causes: employees are unhappy with wages, or employees are unhappy with something else.

If employees are unhappy with wages, it is quite likely that wages are not in line with other companies. If that is the problem, then the correct action is to adjust wages to competitive levels. A one-time payment (even spread over years) will not fix the problem.

I tend to think that Apple's wages are competitive.

If employees are unhappy with something other than wages, then a monetary payment does not fix the problem. Employees could he unhappy about many things: working conditions, opportunities to work on fun projects, opportunities for professional growth, political involvement of the company, or projects deemed unethical by employees. (And more!)

Monetary compensation does not fix any of those problems. The problems remain, and the unhappiness of employees remains.

I suspect that in the middle of the COVID-19 pandemic, Apple requested (demanded?) that employees return to the office, and a number of employees -- senior-level employees -- refused. Not only did they refuse, they refused with "and if you make me return to the office, I will leave Apple and work for someone else". (This is all speculation. I am not employed by Apple, nor have I spoken with any Apple employees.)

Apple has not one but two problems.

The first problem is that employees are leaving, and Apple has addressed that problem with bonus payments.

The second problem is that Apple thinks this tactic is a good one. (They must think it is a good idea. Otherwise they would not have done it.)

Payments of this type must have been discussed at the highest levels of Apple. I suspect that even members of the board of directors were consulted. Did anyone object to these payments?

In the end, Apple decided to pay employees to address issues that are not related to compensation. It is the wrong solution to the problem, and it will probably make the situation worse. Bonus payments were offered to some employees. The other employees will resent that. Bonus payments vest over four years. After the last payment, employees who were given these payments will see their compensation drop significantly. They may resent that.

Apple has a problem. Retention payments don't address the underlying issues. Is Apple addressing the underlying issues? Possibly. (Apple would not advertise that.)

Let's see what happens at Apple over the next year. I expect to hear about changes in the organization, with the resignations of several senior executives.

I also expect that Apple will continue on its current course for its products and services. Those are sound, and have a good reputation with customers. I see no need to change them, other than the typical improvements Apple makes each year.

Moving fast and going far are not the same thing

There is an old saying: If you want to go fast, go alone; if you want to go far, go in a group.

One significant difference between Apple and Microsoft is that Apple manages product lines and Microsoft manages an ecosystem. This difference is significant. Apple is, essentially, moving alone. It can (now) design its own hardware and software. Apple does still need raw materials, fabrication for its chips, manufacture of its cases and boxes, and assembly of components into finished goods. But Apple deals with two types of entities: suppliers (the companies that supply raw materials, chips, etc.) and customers (the people and companies that purchase computers and services).

Microsoft, in contrast, lives in an ecosystem that includes suppliers, PC manufacturers, developers, and customers (both individual and organizational). While Microsoft does design its Surface tablets and laptops, those tablets and laptops are a small part of the larger market. The laptops and desktops made by Dell, Lenovo, HP, and others are a large portion of the market.

Apple can move quickly, changing its processors from Intel to Apple-designed ARM in less than two years. Microsoft, on the other hand, must move more cautiously. It cannot dictate that Windows will shift from Intel to ARM because Microsoft does not control the manufacturers of PCs.

If Microsoft wants to shift personal computers from the current designs of discrete components to system-on-chip designs (and I believe that they do) then Microsoft must persuade the rest of the ecosystem to move in that direction. Such persuasion is not easy -- PC makers have lots invested in the current designs, and are familiar with gradual changes to improve PCs. For the past three decades, Microsoft has guided PC design through specifications that allow PCs to run Windows, and those specification have changed gradually: faster processors here, faster buss connections there, faster memory at some times, better interfaces to graphics displays at other times. The evolution of personal computers has been a slow, predictable process, with changes that can be absorbed into the manufacturing processes of the PC makers.

The Microsoft "empire" of PC design has been, for all intents and purposes, successful. For thirty years we have benefitted from computers in the office and in the home, and those computers have (for the most part) been usable and reliable.

Apple benefitted from that PC design too. The Intel-based Mac and MacBook computers were designed in the gravity field of Windows. Those Mac computers were Windows PCs, capable of running Windows (and Linux) because they used the same processors, video chips, and buss interfaces as Windows PCs. They had to use those chips; custom chips would be too expensive and risky to make.

Apple has now left that empire. It is free of the "center of gravity" that Windows provides in the market. Apple can now design its own processor, its own video chips, its own memory, its own storage. Apple is free! Free to move in any direction it likes, free to design any computer it wants.

I predict that Apple computers will move in their own direction, away from the standard design for Windows PCs. Each new generation of Apple computers will be less and less "Windows compatible". It will be harder and harder to run Windows (or Linux) on Apple hardware.

Microsoft has a new challenge now. They must answer Apple's latest M1 (and M2) system-on-chip designs. But they cannot upend the ecosystem. Nor can they abandon Intel and shift everything to ARM designs. Apple has leveraged its experience with its 'A' series chips in phones to build the 'M' series chips for computers. Microsoft doesn't have that experience, but it has something Apple doesn't: an ecosystem.

I predict that Microsoft will form alliances with other companies to build system-on-chip designs. Probably with IBM, to leverage virtual machine technology (and patents) and possibly Intel to leverage chip fabrication. (Intel recently announced that it was open to sharing its fabrication plants for non-Intel designs.)

[I hold stock in both Microsoft and IBM. That probably biases my view.]

Microsoft needs to build experience with system-on-chip designs, and alliances can provide that experience. But alliances require time, so I'm not expecting an announcement from Microsoft right away. The first system-on-chip designs may be tablets and simple laptops, possibly competing with Chromebooks. Those first simple laptops may take two years of negotiation, experimentation, design, assembly, and testing before anything is ready for market. (And even then, they may have a few problems.)

I think Microsoft can achieve the goal of system-on-chip designs. I think that they will do it with the combined effort of multiple companies. I think it will take time, and the very first products may be disappointing. But in the long run, I think Microsoft can succeed.

If you want to move fast, go alone; if you want to go far, go in a group.

Everyone who is not Apple

Apple has direct control over the design of their hardware and software, a situation that has not been seen in the history of personal computers. I expect that they will enjoy success -- at least for a while -- with new, powerful designs.

But what about everyone else? What about Microsoft, the maker of Windows, Office, Azure services, Surface tablets and laptops, and other things? What about Dell and Lenovo and Toshiba and HP, the makers of personal computers? What Google, the maker of Chromebooks and cloud services?

That's a big question, and it has a number of answers.

Microsoft has a number of paths forward, and will probably pursue several of them. For its Surface devices, it can design systems on a chip that correspond to Apple's M1 chips. Microsoft could use ARM CPUs; it has already ported Windows to ARM and offers the "Surface X" with ARM. Microsoft could design a system-on-a-chip that uses Intel CPUs; such would provide binary compatibility with current Windows applications. Intel chips generate more heat, but Microsoft has success with Intel chips in most of its Surface line, so a system-on-a-chip with Intel could be possible. These paths mirror the path that Apple has taken.

Microsoft, unlike Apple, has another possible way forward: cloud services. Microsoft could design efficient processors for the computers that run data centers, the computers that host virtual instances of Windows and Linux. Such a move would ease the shift of processing from laptops and desktop computers and the cloud. (Such a shift is possible today; system-on-chip designs make it more efficient.) Microsoft may work with Intel, or AMD, or even IBM to design and build efficient hardware for cloud data centers.

Manufacturers of personal computers may design their own system-on-chip answers to the M1 processor. Or they may form a consortium and design a common chip that can be used by all (still allowing for custom system-on-chip designs and the current discrete component designs). Microsoft has, for a long time, provided a reference document for the requirements of Windows, and system-on-chip designs would follow that set of requirements just as laptops and desktops today follow those requirements.

PC manufacturers do lose some control when they adopt a common design. A common design would be common, and available to all manufacturers. It prevents a manufacturer from enhancing the design by selecting better components. Rather than shift their entire product line to system-on-chip design, manufacturers will probably use the system-on-chip design for only some of the offerings, keeping some products with discrete designs (and enhancements to distinguish them from the competition).

Google does not have to follow the requirements for Windows; it has its own requirements for Chromebooks. System-on-chip design is a good fit for Chromebooks, which already use both Intel and ARM chips (and few users can see the difference). The performance improvement of system-on-chip design fits in nicely with Google's plan for games on Chromebooks. The increase in power allows for an increase in the sophistication of web-based apps.

I am willing to wait for Microsoft's response and for Google's response. I think we will see innovative designs and improvements to the computing experience. I expect Microsoft to push in two directions: system-on-chip designs for their Surface tablets, and cloud-based applications running on enhanced hardware. Google will follow a similar strategy, enhancing cloud hardware and improving the capabilities of Chromebooks.

Apple all by themselves

Apple is in a unique position. At least for personal computers.

For the first time in the history of personal computers, Apple is designing the entire device, from hardware to software.

The earliest personal computers (the TRS-80, the Commodore PET, and even the Apple I and Apple II) were built with components made by other manufacturers. Processors, memory, displays, disk drives, and even power supplies were assembled into personal computers. The Apple II used the 6502 processor made by MOS Technologies (and second-sourced by others). The TRS-80 used Zilog's Z-80 processor. The original IBM PC used the 8088 processor from Intel, standard memory chips, and floppy disks (when it had them) from Tandem.

The manufacturers of personal computers was always about using "off the shelf" components to build a PC. It made sense, as it allowed a small company to sell computers and let other companies specialize in components.

Now, Apple is building their own system-on-a-chip that contains processor, memory, graphics processor, and storage. Apple designs the all of the electronics, the case, the power supply, and the display screen. Apple writes their own operating system and application programs.

Such a thing has never been seen with personal computers.

Which is not to day that such a thing has never been seen in computing. It has.

Prior to personal computers, the "we build everything" model was prevalent in computing. IBM used it for their mainframes. DEC used it for their minicomputers.

We cannot make comparisons between the mainframe age and the current age of computing. The markets are too different, the customers are too different, and the computers are too different. The fact that Apple designs everything about its computers is a happy correspondence to that earlier age.

But perhaps we can make some guesses about what Apple will do next.

For starters, they have a lot of control over the design of new products. In the old system, Apple had to use whatever processors or GPUs were available. The designs offered by "specialists" acted as a center of gravity for the market -- anyone using AMD's GPUs was working in a similar space.

Apple is no longer dependent on the designs of others. They do not have to use processors from Intel, or GPUs from AMD, or memory from another maker. Thus, Apple is able to implement its own designs. Those designs, we can reasonably expect, will deviate from the "center of gravity" of the old system. Apple can chart its own path.

Secondly, we can expect that Apple will design its products to help Apple. In particular, Apple will probably add diagnostics to its products, diagnostics that only Apple software will be able to access. The recent M1 MacBook Pro computers are suffering from memory allocation problems; we can expect that Apple will resolve this, at first with software, and later with enhancements to hardware to assist the software in identifying and reporting such issues.

Third, Apple can introduce new products on their schedule. Rather than wait for Intel or AMD to introduce new hardware, Apple can work on new hardware and release products when they are ready. I expect that Apple will release new Mac and MacBook computers every year -- although not every model. Perhaps Apple will use a three-year cycle, with updates to MacBook Air and iMac in one year, MacBook Pro and iMac Pro in a second year, and MacBook Mini and MacBook Max in the third year. (In the fourth year, Apple repeats with updates to MacBook Air and iMac.)

We should note that Apple is not completely independent. While they design the hardware, they do not manufacture it. Apple relies on outside companies to fabricate chips, build components, and assemble those components into complete units. Will Apple build its own fabrication plants? Or buy existing ones? I suspect not. Said plants are large and expensive (event for Apple's budget) and come with lots of environment issues. I expect Apple to leave that work to specialists.

All in all, Apple is in a good position to design its computers and sell them on its schedule.

The important question is: Will those computers be useful to their customers?

That's an idea for another time.