Monday, August 20, 2012

But when Apple makes any kind of play

You can look at it as an advantage or as a drawback, but when Apple makes any kind of play, it is bound to invite numerous discussions, debates and scrutiny. The same is true for its latest acquisition of Intrinsity. Is Steve Job’s new penchant for semi-conductors the ‘wrong move’ that experts had been waiting for so long? by Amir Moin

Another aspect of this whole episode is how this will change the dynamics of the industry. Apple chips are 
based on a design that competes with Intel’s for the fast-growing market of small to mid-size consumer devices, ranging from smart phones to tablet computers. So if Apple prompts other tablet manufacturers to use a similar chip in their products, Intel could see red. Intel also supplies microprocessor’s for Apple’s computing devices and would rue losing such a high profile client.

Custom made chips, if successful and pathbreaking, will come with unique hardware features that are hard to copy and will set Apple apart from vendors who manufacture their products using off the shelf components already available in the market. However, manufacturing chips from scratch is also an extremely risky proposition because such chips are so complex and expensive to make.

In mobile computing, the right kind of chip design can provide a tremendous, differentiated competitive advantage. Apple is even abandoning the traditionally open software-development model. The iPhone, iPod Touch and iPad are all but closed to third-party developers who don’t use Apple’s software-development kit (SDK) and the Apple-filtered App Store. With all this, Apple is tightening its hold over mobile platforms and the huge revenue potential of a fully closed system may encourage Apple to further accelerate this development. All these developments may have huge implications for Apple but given the drive of Apple to be different; this acquisition is poised to bring paradigm shifts in the industry only if Apple convinces other vendors to use its custom made chips instead of what are already available off the shelf.

Apple’s stock price fell significantly post the acquisition announcement (m-cap collapsed from $245 billion on April 26, 2010 to $233 billion on May 7, 2010, though recovering to $238 billion on May 12), showing the lack of faith even extremely loyal investors have in Steve’s latest move. This was also because of news of Google’s Android phones beating Apple’s iPhones in US Q1 (Jan-Mar 2010) sales. With all this in the background and performance issues creeping up fast in iPad customer feedback (Jobs has still not launched iPad in Asia, Australia and Europe), Steve the Goliath needs the latest gambit to give returns too fast to get the heat of his back. But hey, since when has he started caring about what others think of his strategic moves?


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