High AI Capex Demand a 'Multi-Year' Cycle

**SPEAKER_1** (0:02)
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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec. On Bloomberg Radio.

**Carol Massar** (0:32)
All right. So, let's get to certainly a story that we've been talking about a lot. And it feels like two companies got together and they said, let's do more for longer.
Bloomberg's Mark Gurman found out that Broadcom and Apple will extend their tie up in an expanded partnership to 2031 on products that will find their way into, quote, multiple generations of Apple products. So, let's get to it. He is here in studio, made his way to the East Coast. He is Mark Gurman, of course, Bloomberg News managing editor for Global Consumer Tech. Good to have you here.

**Mark Gurman** (0:59)
Thanks for having me.

**Carol Massar** (1:00)
On the East Coast, yeah, it's great. And there's stuff going on. What is going on? These guys have been working together for a while.

**Mark Gurman** (1:06)
Yeah, well, speaking of phones, Broadcom, they make chips, all sorts of chips. And Apple and Broadcom have worked together for decades at this point on wireless components. So, for a long time to get your phone to connect to Wi-Fi or to connect to Bluetooth, you were using what's called a combined Wi-Fi plus Bluetooth chip made by Broadcom. And Apple was the biggest buyer of this chip. It was the biggest revenue source for Broadcom. But a few years ago, Apple decided it's going to go on its own path. They're going to develop their own Wi-Fi plus Bluetooth module. It's called the N1. It's now in the latest iPhones, latest iPads, latest Macs. They're going to bring it to more devices. And so Broadcom got designed out of the iPhone.
But starting in 2023, in order to keep Broadcom around, they created a technology. It's called an RF filter. It's a component that works with the cellular modem. Because as you also know, Apple has dropped Qualcomm, for the most part, and it's now building their own modem. So they're there for the small filter component. But now the partnership is expanding again to something really timely and really important. That's ASIC chips. Now, ASIC chips is a type of circuit, a type of silicon, that's really geared towards a single purpose. Now, what is a big piece of machinery that you need that has a single purpose? An AI server. It's all about AI.
And so they didn't come out and say this in their press release. They said, this is for multiple new generations of Apple products. If you consider an Apple intelligence and Apple AI server to be a product, then fine. But what I'm telling you is that's what it is.

**Carol Massar** (2:38)
Wait, so are they now all of a sudden Apple going to be spending a lot of money and kind of building out their AX? But like, help me understand what this means.

**Mark Gurman** (2:46)
So for Apple intelligence, there's really two ways that this AI processes. There's on-device AI models and there's cloud models. Now, the cloud model has now been split up starting later this year as part of the new Siri. You have the Apple Cloud, which they call Private Cloud Compute. These are Mac chips, the M2 Ultra chips that they released in 2023 Those chips are running in servers to power the AI features in the cloud, the more advanced AI features. As an aside, they're splitting that. So you're going to have the Apple servers, then you've got Google, you've got NVIDIA, et cetera, et cetera. But just think of it this way. There's on-device and there's cloud.
For cloud, the chips are starting to get a little dated. The M2 is from three years ago.
Apple's now working on a new server chip. It's called Baltra, right? They name all these chips internally after islands, maybe the island Tim is at. And they are working on this new chip. They're going to deploy it 2027, 2028
And the ASIC technology in there is has been developed by Broadcom. And they have multiple generations of these new AI servers planned. And what's unique about these AI servers is that the current version is the same as that top end Mac chip that you have in the Mac Studio. That's their most powerful desktop. The one they're going to be deploying at the end of 2027 has four times the power of the M5 Ultra, which is coming to the Mac desktop later this year. And Broadcom is going to help power that. And Apple's got a long road map ahead of subsequent servers. So they are still doing a lot on device for AI, but Apple knows that the real goods are what's powered by the cloud. And so that's why you need that new technology.