Apple’s Vertical Strategy is key to Their Success

One of the things I learned very early on in my limited relationship with Steve Jobs was that he was a control freak. That was both good and bad. Bad in the sense that this was a factor in him getting fired in 1985 when he tried to take control of everything related to the Mac and the way he tried to manage Apple. It was also a good trait when channeled correctly. That started when he came back to Apple in 1997 and had learned a great deal about sharing responsibility with others under him while at NeXT and not being so anal that he had to be in control of everything.

This control freak persona also served him well in one key area too. Jobs was notorious for wanting to control everything he could relate to manufacturing and the supply chain. This drove him and his team to begin developing their processor for the iPhone and other products Apple would bring to market. While their original processor was designed specifically for the iPhone, Apple has expanded its semiconductor portfolio into quite a few products now. One can look to the S-series in the Apple Watch, the W-series in the AirPods (and Apple Watch), and the T-series in an expanding number of MacOS systems. Jobs philosophy was that if they bought components off the rack, they would never be able to outdo their competitors.

I have been impressed with Apple’s semiconductor chops and the development of a robust set of semiconductor IP. Their design work has created a library of IP cores that they can build upon to use homegrown processors in current and any new products they will bring to market over the years. This vertical integration has become a significant differentiator for Apple and has helped them grow their profits exponentially. If they want to do something new to AirPods, Apple Watch, etc., they call upon this core IP and build on it to create new, customized features for newer versions of their products.

Tim Cook went to school on Jobs’ desire to own as much of the technology they could to have more control of their product and profit destiny. However, to date, they have still had to rely on Intel to provide the core processor for the Mac’s. However, I believe that will change in the next two years.

I always thought Intel was a stop-gap move by Apple when it came to using X 86 processors in Mac’s. At the time Apple jumped to Intel, they were forced to do this when Motorola stopped making the 68000 series chip that had been in Mac’s for decades. However, Jobs’ desire to control his destiny down to the chip level suggested to me that it was only a matter of time before Apple would use their semiconductors in the Macs.

One key thing that suggests that this could be happening before the end of this decade is the recent announcement by ARM Holdings of a much more powerful ARM chip that could rival Intel’s Core I5 chips in PC’s. Apple, being a significant licensee of the ARM core, gives them the ability to add on to this new ARM semi design with their own IP and perhaps create an even more powerful chip to eventually rival the core I7’s they get from Intel today and add them to their entire line of Macs.

Alternatively, they could use their own chips in Mac’s that today use Core i5’s and take a bit longer if needed to get to their own Core I7 level chips that would be used in high-end MacBooks and All-in-One Macs.
I no longer believe Apple is committed to Intel for the long run. Their chips are getting so much more powerful at every level that using their own proprietary chips in Macs is not a question for me anymore. The only question is when the will do this.

Apple owning their own semiconductor IP and being able to use fabs like TSMC that is already producing products for Apple using 7 nm processes give them quite an edge on the competition. Their semiconductor team gets stronger each year as they continue to bring some of the brightest minds in semiconductor design and related software into their IP fold.
Even more interesting is that Apple ’s vertical integration makes it hard for competitors to keep up with them. Samsung does a pretty good job competing at the semiconductor level, and their mobile division has their own approach to vertical integration since they can tap into various divisions in Samsung Corporate. However, even here, Apple has a pretty solid edge in the design process as these teams are actually part of the overall team the creates any new product. In Samsungs case, they tap into individual divisions within Samsung, and as far as I can tell, they don’t make their semiconductor team part of the design team and integrate them into the overall product R&D as a whole.

I look for Apple to become even more potent in their use of homegrown IP in semiconductors and perhaps other components in the future that makes sense for them to develop in-house. If they continue on the track they are on now, Apple’s role as a product and service powerhouse will only become better and more integral to Apple’s future.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

Leave a Reply

Your email address will not be published. Required fields are marked *