How much profit will Apple suck out of its own supply chain as it moves deeper into making key components for its products? And as it increases its take, might it force changes in its supply base that will actually result, over the long term, in greater risks for its own business?
Those questions were brought to the fore again this week with reports that Apple is moving ahead with plans to replace iPhone wireless communications chips made by Broadcom and Qualcomm, and to make its own displays. Those changes are still some way off, according to Bloomberg. But they are part of a seemingly inexorable progression that has already seen Apple take charge of the silicon “brains” in the iPhone and iPad, as well as an increasing number of Macs.
The answer to the first question — how much profit can Apple extract — seems to be: a lot. Broadcom and Qualcomm, two of the chip sector’s most profitable companies, each look to Apple for around a fifth of their sales, presenting a juicy target.
Yet the push deeper into component technologies is not primarily about claiming a bigger share of the cake for itself. As always with Apple, technology strategy is determined by the needs of the product: the premium prices that mean the profits take care of themselves.
Tim Cook laid out the goal in 2009, two years before he became chief executive, when he said that Apple wanted “to own and control the primary technologies behind the products that we make”. He also said it would “participate only in markets where we can make a significant contribution”.