Apple's Next-Gen iPhone Picture Getting Clearer - Page 2

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Moving up the food chain

So now, all the speculation has shifted to a higher-end phone than Apple's current offering. With iPhone contracts ending shortly, customers will likely want more than just incremental updates -- not just a few new features but a big jump from the original phone, Bajarin said. Changes to the architecture could enable features iPhone fans have been asking for, such as the ability to run applications in the background and to play Flash animations.

The question is what Apple will add, and how it plans to achieve it. One rumor came courtesy of a research note from Doug Freedman, analyst with AmTech, the market research firm previously called American Technology Research. He suggested Apple is working on an iPhone using nVidia's Tegra chip.

That would make for strange bedfellows, as Microsoft is also rumored to be planning a phone based on Tegra. nVidia (NASDAQ: NVDA) launched Tegra in June 2008 as a high-performance competitor to embedded processors like the ARM processor Apple uses in the iPhone. The Tegra 650 can support 1080p HD output using the high-def H.264 codec. The company would not comment on Freedman's paper or rumors of Tegra in the iPhone.

Bajarin doesn't buy it, however. Apple spent a tidy sum of money to acquire P.A. Semiconductor, and in December invested $5 million in Imagination, a British semiconductor maker of mobile phone chips. Ultimately, he believes Apple wants to bring chip development in-house and lessen its dependence on outside developers, which would be in keeping with Apple's closed nature.

"I would expect them to demonstrate the benefits of the P.A. Semi acquisition soon," Bajarin said, adding that former P.A. Semi CEO Dan Dobberpuhl, who was the lead designer for the DEC Alpha and StrongARM processors, has a history of taking architectures and making them better, and the ARM license permits customization of the processor.

"That's the beauty of the ARM license. You can license it and do what you want with it. [Apple] can make it better because they have the engineering talent to do so," Bajarin said. "Apple is not jumping to a new processor -- they are using the architecture knowledge of P.A. Semi to license an ARM chip and customize it their own way."

Updated to clarify likely timing of Apple's Worldwide Developer's Conference.