Vertical Integration and a Teardown Analysis of the iPhone 4SPosted: November 10, 2011
Last week there was a very useful WSJ article reporting on an analysis of the supplier relationships at the core of the new iPhone 4S (here … while it lasts). This seems like a nice mini-case analysis to see how our theories seem to explain actual outcomes.
They note that Qualcomm “is the big winner” because it is supplying a suite of chips that adds up to $15 per phone. Intel is a loser because it acquired Infineon and then those chips were dropped from the product.
Samsung lost out on the memory chips to its Korean rival Hynix — a surprise since Samsung is known to have a more reliable product. However, interestingly, Samsung did retain its role as the manufacturer of Apple’s proprietary A5 processor which provides the iPhone 4S and the iPad 2 with the bulk of its computing power.
Apple recently vertically integrated the design of this proprietary chip following its acquisition of PA semi. Prior to that, even the design of this most central hardware component was outsourced. While the element of firm specificity is probably greatest in this component, I suspect that vertical integration was not the result of suppliers failing to make specific investments. Also, while intellectual property sounds like it could be a driver, the fact that Apple is suing Samsung for stealing IP in the Samsung Android tablet, makes them an interesting choice for a key partner. Perhaps they did not anticipate this when selecting Samsung. If so, this seems rather short sighted since Samsung has been producing Android phones since 2008.
In any event, the actual business relationships seem, in many respects, much more complex (and interesting) than our theories might predict. More work for us to do perhaps?