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.
@WaqasAltaf: " this is a part of business ", I fully agree with your post and it allows the chance to outline a very recent news; Apple has accepted to leave its maintenance policy and to fit rules from European countries. I believe maintenance is a part of business as well and Apple is not so strong as in the past if they have immediately accepted what Regulators asked (in order to avoid any penalty from UE Antitrust...)
@Bolaji, I have to agree with you that Apple is not forever. If I was Intel, I would already be making my move to lower my cost structures or increase incentives to Apple's competitors. I would do this on the QT, but I think there is a certain arrogance that comes before a fall. Will Apple fall all at once? Unlikely, but supplier and customer loyalty are two sides of the same coin. Once you start etching away at the supplier loyalty side, the whole coin becomes thinner and customers will begin to question Apple's loyalty to them as well. How long will Intel support the processor with firmware modifications if the overall market demand for the processor is drastically reduced. Market demand is one of the key drivers for obsolesence. Ongoing product and customer support is a key driver for customer loyalty.
Wale, The reality is quite simple. No single company can continue to maintain market share above 50 percent when the differentiating technology is obviously available to so many other players and when the profit margins the leader enjoys is so plum. What lies ahead for Apple is simple. it can defend current market share and keep a large part of it but it cannot keep all of it.The company's share of the tablet PC market is coming down despite the fact consumers believe the iPad is a superior device. I expect Apple will lose share in both markets to rivals but it will remain a dominant player.
Barbara, You know how important a strong long-term supplier-OEM relationship can be for companies in the electronics industry. In recent years, though, the "together" spirit has come under challenge as everyone tries to get the most for themselves. The race for the "most" is individual-focused but a supply chain is a together race.
WaqasAltaf, I used the Intel case as an example of some of Apple's more recent actions. This wouldn't be the first supplier to be dumped by Apple in pursuit of its own key interest. That's as it should be but suppliers also invest millions in product development and R&D to get their products to market and the support of key customers is crucial to their success. When companies can be tossed aside by players who do it because they can and don't reward long-term suppliers the entire system is threatened. Sometimes we have to learn how to hang together.
You are right. Apple has the right to do what it believes is right for its business and Intel has to continue to make itself relevant in the market. When a company gets as big as Apple, however, it can also use its size and purchasing power as a punitive weapon as it seems to be doing in its relationship with Samsung, which has for long supplied displays to the company but which may be in danger of losing that deal.
The toppling of a market leader has a lot of histroy to back it up. There was a time IBM was king of the world, although not in the consumer market. But IBM still recognized it had made some strategic errors and began its re-invention. The impact on the market was huge: anyone remember Wang? I think the Intel/Apple analysis has a lot of parallels to draw from.
"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."
I am not a big fan of Apple's pricing strategy. If I was a manufacturer, I would love to see my phone in every pocket rather than my pocket filled (with money) with my phone only in the pockets of few. It is not about being successful with the strategy or not, Apple has been successful surely, but the charm of controlling the market share is too attractive if you are not thinking only like a businessman.
Bolaji, loved the way you warned Apple about its 'non-invincibility'. Surely, long term strategic partners are necessary no matter what your current situation is.
Nevertheless, Apple's intention of replacing Intel chips with its own cannot be classified as the one to derail the chip-making giant and its friendship. This is part of business. Friendship is another thing and sacrificing your investors' money for friendship is another. It is Intel that needs to learn that how can it ensure that device manufacturers prefer to remain dependant on it.
May be a little bit of market reality check should be done to know what would likely be market outlook in years to come in world of smartphone and perhaps tablet.
We have been focusing on Samsung, Amazon, and now Windows mobile phone. Another one again, LG, just launched its new phone in UK.
"The new LG Nexus phone sold out within 30 minutes of appearing on Google's Play store in the UK this morning"
Certainly Apple is not invisible these days with their Apple i5 being on the market but their tacticts on different stratergies of the market seems to be faded a bit. Lets hope things will get back to normal on behalf of all the Apple fans.
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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