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Forbes: Vertical Integration Key to Apple Future
Thursday, April 24th, 2008 at 4:00 PM - by .(JavaScript must be enabled to view this email address)
Vertical integration, controlling key component costs, and creating more competition amongst chip suppliers are the themes behind what Apple is doing with P.A. Semi, according to Forbes on Friday.
In a market where the key chip technologies can account for 30 percent of the component costs and most every other mobile phone manufacturer, except Samsung, has to depend on other companies to make the key chips, Apple can better control costs by investing in a chip design and manufacturing company.
Analysts see this as "... another effort from Steve Jobs to control the differentiation elements of his product line. He already controls the operating system, which has enabled the creative, mercurial genius to offer an unprecedented user experience on both his handheld and desktop products," Sramana Mitra wrote.
The move just might put Apple in an unstoppable position with respect to pricing and capabilities in low power devices.
"Samsung is the only mobile handset vendor in this market that is also a significant semiconductor player, Ms. Mitra wrote. "In fact, Samsung owns its own chip fabrication facilities and has considerable ability to differentiate via manufacturing excellence and cost. Having Samsung as a key vendor should make Apple nervous.
Even if the technologies of P.A. Semi don’t pay off right away, the competition won’t know what Apple is up to and will always be begging Apple to do business with them -- at prices Apple demands. That could pay for the US$278M in very short order. Also, in such a competitive business, too much is at stake. Mr. Jobs gave himself options.
"If Apple succeeds, expect to see many others in the industry scramble to recreate a vertically integrated industry, which is where it all started. WinTel will eventually be seen as a detour," the author concluded.
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