Reference no: EM132800166
Apple built its gadget empire by outsourcing production to a vast ecosystem of chip makers and other component specialists. It is now taking a lot of that business back. The company, which released its first iPhone processor in 2010, plans to ship Macs this year with custom chips, a move that ends a 15-year technology partnership with Intel. (Intel stands to lose about $2 billion in laptop chip sales annually). Apple said the custom-designed chips are more efficient and offer higher-performance graphics.
The plan fits into Apple's broader strategy of replacing many third-party parts with components designed in house. Apple's built-for-purpose parts now account for 42% of the costs of core iPhone components, up from 8% five years ago. Custom components have cut costs, boosted performance and increased Apple's control over future releases. The new Mac processors will shave $75 to $150 off the cost of that computer.
The strategy springs from Apple's philosophy-fostered by Steve Jobs-that owning core technologies provides a competitive edge. Customized chips and sensors can help its iPhone, iPads and Macs leapfrog rivals in battery performance and features. It also can protect Apple from Chinese rivals that buy universally available parts. Apple relied on third-party components for years while it built the engineering depth and expertise it needed to design more components itself. Apple's chip division has mushroomed over the past decade to thousands of engineers.
The initiative-called insourcing-can give Apple a 2-year jump on competitors in device performance because Apple can plan how multiple chips work together to limit power consumption and free up space inside iPhones and iPads for other components. Many companies continue to supply Apple, which provides substantial revenue, even as they fear Apple will start making the very components, they provide it.
Discussion questions:
-What are the reasons Apple chose to "insource?" Mention 3 reasons and explain.
-How is Apple achieving competitive advantage through OM?