I had never questioned my humanity until a family member gave me an interesting book titled So You Think You're Human: A Brief History of Humankind. It forced me to question my assumptions about humanity and what it meant. The book, by Felipe Fernández-Armesto, is not about the business world, but I still recommend it to corporate executives in all industries and especially leaders of electronic OEMs and semiconductor companies.
The book came to mind while I was editing a seemingly unrelated article about how consumer electronics and PC giant Apple Inc. (Nasdaq: AAPL) may be considering producing (itself) chipsets for the Macintosh computers and possibly many of its consumer electronics products. This will mean dumping current vendor Intel Corp. (Nasdaq: INTC), opening the door for similar moves by other OEMs (OK, that may be a stretch), and possibility ending the dominance of the X86 architecture that has reigned over the computing market for decades.
Couple this with the take-no-prisoners way Apple has pursued rivals for allegedly violating its patents, the late CEO Steve Jobs's declaration of "thermonuclear war" on Google, and the squeeze it allegedly puts on suppliers to reduce inventory costs, and you get the image of a company really throwing its weight around. Apple's heft is substantial -- not even smartphone and tablet market rival Samsung Electronics relishes a dust-up with the company. Today, Apple is the undisputed no. 1 company that vendors fawn over, for good reasons.
There's a bigger issue here, though, for the industry and for Apple. What I'd like to point out is that Apple got to where it is today because its supply base was willing to work with the company even when it was a bit player in the PC market and during its march up the consumer electronics food chain. Dumping the companies that helped push you up is a bad business strategy that may eventually cost a company a lot more than it might gain. More on this later.
For now, let me provide some additional insight into Apple's role in the electronics supply chain. No other company in the electronics world has to my knowledge grown as rapidly as Apple, and certainly no other has captured investor imagination quite as completely. In just three years, its sales more than tripled to $156.5 billion in fiscal 2012 ended September 29 from $42.9 billion in fiscal 2009. The company's enormous purchasing power (total costs of goods sold in Apple's fiscal 2012 was approximately $88 billion) means it can make or break a vendor. A slice of Apple's enormous semiconductor procurement budget could swell a company's revenue and dramatically jack up its market value. The loss of such a contract could, conversely, drive an enterprise out of business.
Let me translate again what those numbers mean if you are a supplier -- or wish to be a vendor -- to Apple. Even if you are the CEO of Intel, you'd drop everything and run down to Cupertino, Calif., if Apple sent a text message asking to see you. And Intel isn't one of the smallest companies in the electronics market: It is the world's biggest semiconductor supplier by sales with $54 billion in 2011 revenue. If Apple drops Intel, this move will automatically triple the severity of the headache the chipmaker is already experiencing from the lock ARM Ltd. (Nasdaq: ARMHY; London: ARM) seeming has on the mobile handset market.
Apple should rethink this move. The company has no obligations to keep Intel in business, and the semiconductor vendor itself does not have a right to what should prevail in the industry. I am not advocating Apple stick with a particular supplier at the expense of another. However, no single company can handle the dozens of activities involved in the design, production, distribution, sales, and after-sales support of its products. Making companies feel as if they can be easily replaced isn't a fiscally good long-term strategy notwithstanding your company's current position.
No company in this industry reigns forever, and Apple's domination is already under assault in all of its markets, including digital music players, smartphones, and tablet PCs. The numbers will start to shift against the company because it is too tempting a target, and too many companies have their scope set on its fat margins. A recent report noted Samsung beat Apple in smartphone shipment during the third quarter, for example.
As the headline of this blog indicates, no company has an unassailable position in any market. Apple is not invincible. A day will come when it will need to call in some favors for critical supplies or to clinch a share-winning deal. If it remains blind and deaf to the needs of its current suppliers, they'll repay the favors in equal measures.
@Bolaji: very great perspective, I have only to say till a recent past (I mean, till the early 2000), ICT market didn't run current speed, then events happened were not so fast as of today. As consequence, 3 years are not at all a long slot, but at current speed rate, 3 years within ICT market is a really long leadership timeframe and sooner or later, another "invincible" is going to come.
Matteo, We sometimes forget that Apple hasn't even held the crown it has now for that long. It has been at the top of the smartphone market for perhaps three years and already Samsung is challenging it. The company's share of the tablet PC market is going down because so many players want a piece. The competition is going to be relentless and they'll whittle down Apple.
Apple can afford to go into value-added product design and production on its own because it has the resources. As people like to say, though, just because you can doesn't mean you should. There's a reason the industry moved towards specialization and dumped the vertically-integrated manufacturing model. I don't think this is what Apple wants to move towards, though. I believe they would (they are already in certain areas) design their own chips and contract with a foundry like TSMC, GlobalFoundries or Chartered to make the semiconductor.
That's the company's prerogative but the collective power of the industry is bigger than that of any single enterprise and cutting off suppliers when they've become heavily dependent on an OEM is a bad strategy when that supplier has been a part of your sales growth.
I understand why they may want to do this. Apple may want to keep as much control over its supply chain as possible, especially the value-added segments. It won't go into manufacturing/assembly because it's basic low-skills work. At the same time, though, if you hollow out the supply chain because you are successful, what happens to the system?
I suppose it is only natural for companies like Apple to starting looking at more and more vertical integration. However this can oftentimes lead to uncompetitive products. Sometimes it is better to let other more specialized suppliers develop your clever bits.
@_hm: good point to outline, but ICT market story has demonstrated other big players have been impacted by leaving off the role. It happened for DEC Digital, despite in the 80s they seemed invincible; in a such way, it happened for IBM. Is innovation the only key for allowing Apple to hold the rank forever?
Nicely worded article. Apple, Intel are all big names in the industry. They both have their strengths and weaknesses in terms of industry they cater to. Intel has strong experience and business hold on hardware side. Not sure how Apple would take the risk of keeping away Intel. But yes Apple has the histroy of creating monoply so nothing is impossible for them.
Insightful Bolaji and well summed up - "No company in this industry reigns forever" I agree with you hundred percent. I suppose Apple's moves to dump Intel Corp might seem strategic. However, I think these are tell-tale signs of PRIDE before a FALL.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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