For instance, Apple focuses on design and integration, but Foxconn, a Chinese contract equipment manufacturer, actually puts together iPads and iPhones. “Despite the benefits of specialization, it can make sense to have everything under one roof,” says Wharton management professor David Hsu. Sterne Agee analyst Shaw Wu said in a research note that Apple has been able to advance features like power consumption precisely because it controls the parts that make up the iPad. If others followed suit, large technology companies would dominate supply chains and innovation, which could make it harder for a start-up to develop a breakthrough product. Of importance here is the design and inclusion of two more blocks of the SoC — namely, the GPU and Neural Engine — that are central to iPhone performance and experience. “This is due to Apple’s ownership of core intellectual property including systems design, semiconductors, battery chemistry and software.”. Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts. But the mobility market is "$10 trillion." Hsu notes that the PC and semiconductor markets were once vertically integrated. Succeeding Against All Odds: Vanke’s Songhua Lake Ski Resort. Login to post a comment. I thought about the AirPods and noted an eerie resemblance between the AirPods’ features and the acquired Passif IP. Some technology will be implemented in software and others may be implemented in hardware. Does the iPhone have capabilities that might be impossible, perform poorly, or be more expensive without the A-series? Vaccine Rollout Be Improved? All materials copyright of the Wharton School of the University of Pennsylvania. Would they be able to design comparable, let alone better, ICs than X or Y semiconductor company that was already in the space? “We believe that Apple’s software ecosystem (including 3rd party apps, iOS and Apple’s own applications) is the key to driving sales long term,” Barclays Capital analyst Ben Reitzes said in a research note.”There is just too much you can do with an iPad versus other devices.”, As technology companies push to become more vertically integrated, a few unpleasant side effects could emerge. The vertical integration of their semiconductor design efforts has become central to numerous revenue streams and the Apple ecosystem. The A-series, and what I consider the “modern” Apple semiconductor effort, was underway. They are sold to customers and revenue is earned. Get Knowledge@Wharton delivered to your inbox every week. On one level, Apple can focus on design that is specific to its needs and desired features. This article is more than 8 years old. Google may be getting into hardware today, but it could be Facebook tomorrow. “I could put that calculation that is called regularly into transistors to save software cycles.”. Apple said that they wanted to further differentiate their products. Apple'S Vertical Integration. The technology industry’s rush to vertical integration may be misplaced, Hrebiniak says. Apple was about to go vertical. Along the way, Apple integrated an Image Signal Processor and their Motion Co-Processor, to name but two blocks. For instance, Hsu suggests that the advancement and growth of Google’s Android technology may slow if the company is juggling hardware and software efforts. The tech industry’s success in this type of integration is mixed. Apple Vertical Or Horizontal Integration Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace Simply said, every single product that you can think of has a big life cycle. Mobile Phones | … When my co-authors and I looked at the A4 for EE Times, we found considerable block level similarity with Samsung’s S5PC110; i.e., an Arm-based SoC of the day. Apple has stressed the coordination of software and hardware engineers at many keynotes over the years. In technology, Apple for 35 years has championed a … It showed the level of commitment to Apple’s semiconductor group. When the iPhone was unveiled on Jan. 9, 2007, it was a departure from the existing phone paradigm. The circuit blocks may well be useful only to Apple after such a process, but that is fine as the semiconductor group only has one customer. If Apple designed the SoC but not its own blocks, it would need to source an appropriate machine-learning IP core. A die photo of the A6, with annotated CPU, is presented below. Steve Jobs quotes Alan Kay at iPhone 7 launch. As part of EE Times’ look at Apple’s march to becoming the first trillion-dollar company, I will look at their “modern” semiconductor work. “If a new product or service dovetails nicely with your core business, then there is something to leverage. Steve Jobs included it in the 2007 iPhone launch. Apple is continuing its vertical integration policy with its intent to purchase Dialog enabling it to develop chips in-house improving products such as AirPods and Apple Watch. What about Alan Kay’s quote above? In that respect, the challenges these firms face will be similar to what many diversified multinationals deal with when managing disparate business units. Apple Inc. has employed a vertical integration strategy for decades. Apple design and hired companies to build and assemble things according to Apple’s spec. I have glossed over quite a bit, including not jumping into the performance of the major blocks. Vertical integration solves the blame ambiguity problem One way to ensure accountability for mistakes is through vertical integration. Eventually, however, the supply chains reverted to being more specialized. For instance, the iPhone and iPad have hardware and software designed by Apple, which also designed its own processors for the devices. Google recently acquired mobile device maker Motorola Mobility and will soon manufacture smartphones and television set-top boxes. BC. If not, focus is better.”. A block, such as the Neural Engine, is identified and it is designed. A die photo of this SoC is shown below. 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. Is this design differentiating the iPhone from other phones, as Steve Jobs hoped when he launched the A4? Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors or retail locations to control its value or supply chain. “In some ways, you can make the case that more vertical integration could mean less innovation,” Matwyshyn adds. The role of semiconductors is not as clear because there are no external sales; there is no direct revenue. The reasons for this can vary, but a general theme among each successful implementation is an abundance of resources for the company involved. Is there a market for instant, secure shopping from your TV? Home » Processors/Controllers » A Look at Apple’s Vertical Integration, A big read on how custom hardware works for the trillion dollar company, “People who are really serious about software should make their own hardware.” — Alan Kay. The A7 brought the so-called Secure Enclave to store and process fingerprint data from the TouchID sensor. Prior to this, he spent six years drafting and prosecuting patent applications at one of Canada’s largest IP law firms and three years reverse-engineering integrated circuits. Apple’s integration efforts were on display when the company unveiled its third-generation iPad last week. With it, Apple introduced an in-house-designed CPU. A few years ago, everyone was outsourcing.”. It was also found that the Arm CPUs were identical. In addition, Hsu says, Apple is so large that it can dictate terms to contractors — a leverage point that other technology companies cannot match. An excellent video on how Apple uses vertical integration to compete with Samsung and Microsoft Get My FREE Training on How to Become the Muslim Pioneer in … “The fundamental question about efforts to expand is whether there are synergies between these parts,” notes Whitehouse. I thought about the possibly impending tablet and its silicon, my co-authors and I looked at the A4 for EE Times, its possible application to the Apple TV remote, NXP BlueBox 3.0 to Enable “Differentiated Vehicles”, Deca Technologies’ Innovations (Part 2): Adaptive Patterning, Huawei Maintains Lead in Global Communications Equipment Market, After Chip Supply, Materials Shortage to Add Woes to Automotive Industry, Quantum Computing Ready for a Leap into the Real World, The Pandemic Pushed ‘Prime Day’ Into October, AMD Confirms Xilinx Acquisition To Become HPC Leader, Samsung Spurs Growth in Mini LED Backlight TV Market, while Intense Competition in LED Supply Chain Set to Resurface. 9 views. It may also need to rethink the GPU as it is said to share in some machine-learning tasks. Annotated A4 die photo (Source: MuAnalysis), Annotated A6 die photo (Source: Chipworks), Annotated A11 die photo (Source: TechInsights). Apple's iPad may be the latest and greatest tech gadget, but oddly enough, it also represents a return to a model that most tech companies long ago abandoned—vertical integration. Vertical integration dictates that one company controls the end product as well as its component parts. Furthermore, Apple would need to write software that runs on these blocks. “Every industry has periods where vertical integration looks better. It is an expensive endeavor. The resort[…]. They are designing for one customer, presumably reducing the compromises needed to appeal to many. On Jan. 27, 2010, Steve Jobs took to the stage to introduce the iPad and the Apple-designed A4 SoC. It is safe to say that it is an important feature of the iPhone X. I also asked “…what happens if you could design your own processor with blocks tailored solely to your device and its application?”. Apple has become famous for developing much of its own technology in-house -- or "vertical integration." That integration, which requires centralization foreign to Google and many other companies, is hard to deliver. It is the defining product on the road to the trillion-dollar milestone. “Our industry checks indicate Apple has made notable progress in improving battery life that has plagued competitors,” said Wu. Vertical integration dictates that one company controls the end product as well as its component parts. In technology, Apple for 35 years has championed a vertical model, which features an integrated hardware and software approach. Apple business strategy can be characterised as vertical integration in a way that the company has advanced expertise in software, hardware, and services at the same time. According to Wharton management professor Dan Levinthal, what Apple’s competitors really envy is the company’s control of its ecosystem. It must design cores that perform the best with iOS. “What Apple has done well is stay ahead of commoditization,” Hsu notes. Being at the top of the technology industry is a position that Apple is extremely familiar with. I think many of these moves are really about the latter sort of motivation,” says Levinthal, who adds that Google’s purchase of Motorola Mobility was not only a way to gain control of various patents, but also to fend off Apple’s patent lawsuits. “Apple does well, but has had top-down integration of hardware and software for more than 30 years,” Hrebiniak states. At the time, Chipworks commented that the architecture appeared to be a manual layout. For example, Research in Motion also bought QNX, a company with an operating system, and is trying to assimilate it with the firm’s hardware offerings, such as the BlackBerry. Apple might consider a large feature such as facial recognition as being something of interest. The argument Ashraf made was Samsung has more market power than Apple due to their vertical integration into NAND/DRAM, display, and foundry. How Artificial Intelligence Can Slow the Spread of COVID-19. A new machine-learning approach to COVID-19 testing that was developed by Wharton’s Hamsa Bastani and other experts has produced encouraging results in Greece by identifying more asymptomatic, infected travelers than what conventional random testing would have achieved. Centralization is key to streamlining the process and speeding up vaccination efforts, says Wharton’s Gad Allon in an interview with Wharton Business Daily on SiriusXM. All of the semiconductor products are for “internal use only.” Does everyone buy an iPhone because it includes an A-series processor? Would the AirPods have been possible without the W1? This is only part of the equation. The vertical integration of their semiconductor design efforts has become central to numerous revenue streams and the Apple ecosystem. Matwyshyn predicts that many technology companies currently trying to integrate software and hardware will back off in a few years. Do the A-series SoCs differentiate the final product? Its target markets range from finance and investing to IP law and management consulting. For example, Vivendi transformed itself from a water company to one focused on media, while GE started as an electric company but later expanded into such disparate businesses as microwave ovens and the NBC television network (which it recently sold to Comcast.) Orwellian Nonsense or Innovation in the Classroom. Also, even though semiconductor revenue is indirect, a poorly performing A-series chip would most likely result in reduced sales. In technology, Apple for 35 years has championed a vertical model, which features an integrated hardware and software approach. Indeed, Apple’s integrated approach in the PC market did not work to the firm’s benefit when it was battling Microsoft in the 1980s and 1990s. However, once markets become less differentiated, a specialized approach — where each member of a supply chain has a role — makes sense. At the same time, other blocks, such as the Secure Enclave, would be identified as being useful, now processing the facial image data instead of fingerprints. Google’s plan is to operate Motorola Mobility as a separate business, which is tightly coupled to the Android mobile operating system for smartphones and home set-top boxes. Huberty believes that Apple will approach its electric car the same way that it does the rest of its business, with vertical integration from the components to the financing. Horizontal integration indicates the strategy of a business to increase a market share by occupying a similar company or business. Vertical integration dictates that one company controls the end product as well as its component parts. But recent changes show just how integral that … For instance, IBM divested its PC and printer operations to become a more service-focused company. Both are important bits of design. Apple don’t have vertical integration on manufacturing. Vertical integration, while advantageous to some large businesses that have positioned themselves correctly in their market and industry, is a step many businesses simply cannot afford to take. In the case of PCs, a group of companies now makes different parts of the machine that are then put together to create the final product: Microsoft builds operating systems, Intel makes processors, Nvidia provides graphic chips and a series of companies manufactures hard drives. The A11 incorporated Apple’s first in-house-designed GPU and their so-called Neural Engine. Opinion. The company has integrated horizontally by expanding on the services that they provide. “Companies can emulate the Apple model, but it will not happen overnight,” notes Lawrence Hrebiniak, a Wharton management professor. Oracle bought Sun Microsystems and now champions engineered systems (integrated hardware and software devices). How Could the U.S. The scenario is even more intractable if there is less vertical integration and Apple sources a whole SoC. “Conglomerates are now refocusing after spreading themselves too thin,” says Whitehouse. You must Register or This is no small feat. Surely, it was too big a risk. — Paul Boldt is president at ned, maude, todd &rod inc., an Ottawa-based information service company focused on technology. The semiconductor group does not need to be the best designer of everything they touch; they need to be the best designer for their customer. It might acquire one or more companies to assemble IP around at least some of the technology. When the T1 emerged, I thought about its possible application to the Apple TV remote. Many Android devices include their own versions of a Secure Enclave, but it’s harder for them to provide the same degree of top-to-bottom security since their manufacturers … Early days and the A4 Why would Apple want to bring large-scale semiconductor design in-house? “If every tech company followed Apple, there would be a degree of novelty and innovation lost.” After all, Apple’s success may be largely a function of a command and control structure instituted under former CEO Steve Jobs. Some commentators in the entertainment and finance industries pretend that Apple will buy Netflix but this is an oversight. I would have to say yes. Apple has about one-third of this market. Typically, companies back away from vertical integration as products become more commoditized. Our A4 die photo from the EE Times article is shown below. Known for setting the pace in mobile computing, Apple implements vertical integration across various aspects of production and creation of intellectual property.… The company has been benefiting from its vertical integration immensely. April 20, 2017. As they move major blocks to their own designs, they are placing more responsibility onto their designers. Looking forward So far, I have only talked about the iPhone and the A-series SoCs. Any company considering this step should take care to thoroughly understand their ability to scale while absorbing the costs of acquisitions. Published with reusable license by Beatrice Castiglioni. Apple’s success with iPhone has increased the emphasis on vertical integration – controlling most parts of the value chain to the consumer: “Vertical integration dictates that one company controls the end product as well as its component parts. We did not know that this quote would soon apply to Apple’s jump into a much larger semiconductor effort. After all, there is a reason that large conglomerates tend to trade at a discount on Wall Street — they are harder to manage. Even though Android is technically open source, Google drives development. Samsung, a large technology conglomerate, has thrived by making everything from LCD panels to processors, televisions and smartphones. I see both blocks as important going forward because they contribute to machine learning. At face value, it captured Apple’s need to design its own phone, to run its new iOS software, which brought about a new way of interacting with phones — think touchscreen, virtual keyboard, and swipes. This latter acquisition was confirmed in April 2010. To illustrate this, here are some notable examples that highlight how it can work: 1. In particular, FaceID and Animoji are said to be enabled by the Neural Engine. In its current form, Apple has found a way to balance vertical integration with an outsourcing model. According to Hsu, Apple has deployed a hybrid model, where it has control over the product and supply chain, but uses contractors in many areas. Apple has shown its semiconductor design prowess and established an interesting bit of semiconductor IP. “It is important to distinguish between a motivation to manage the interface between hardware and software and a desire to manage one’s ecosystem. I do not know about what Apple is dreaming in their development labs, but one can envision some interesting possibilities with the semiconductor building blocks that are now in place. Analysts say Apple’s successes in this area led to increased market share. They were marketing their Hummingbird Arm-based CPU. The Benefits of Vertical Integration As Evidenced by Apple's Intent to Purchase Assets from Dialog However, Apple is … The new version will come with 4G connectivity, a high definition display and a faster processor. A-series milestones After the jolt of actually introducing an in-house SoC, I would say that the next major milestone came with the A6. Here, in a bad case, a secondary IC may be required to perform machine learning, implying more board space and cost. At their launch, the AirPods seemed to stray from the standard Bluetooth practice of having a wire between the left and right channel. But in the spring of 2008, Apple announced the acquisition of PA Semi, a largely unknown processor design house focused on Digital’s StrongARM technology. Yes, one loses flexibility, but the performance gain could be worth it. “In 10 years, these companies are going to look a lot different,” says Matwyshyn. Google also wants to create a more seamless user experience that will entice consumers to invest in its full line of products, rather than just using one or two, Levinthal notes. “Apple is more of a trailblazer and that opens up possibilities.” The catch is that a vertical approach does not provide a significant advantage if a firm is unable to stay ahead of the competition. But RIM’s QNX-based operating system has been delayed as the company struggled to sell the PlayBook tablet. Most technology companies in the world can manage one or two of these disciplines, but only Apple has all four entities working in harmony. Innovation By Vertical Integration Jesse Levinson , Zoox Jesse Levinson, co-founder and chief technology officer at Zoox, discusses how creating everything in-house is intended to give the autonomous-vehicle startup a strategic advantage, likening the arrangement to Apple’s decision to control all aspects of creating the iPhone. Apple’s vertical integration is one of the major factors that set it apart from the competition. Steve Jobs described it as “a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough internet communicator.” That day, he also introduced a new operating system: iPhoneOS, aka iOS.

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