Simplicity is Hard Work

Post by
Scott Francis

Great post from Matt Drance a while back on Components. Specifically, Apple's approach to components:

Similar to the 2008 PA Semi acquisition, the Anobit acquisition highlights a continued priority on internalizing improvements to hardware. Most people think of Apple as a hardware company in the industrial design sense, but not necessarily in the R&D or manufacturing sense. However, the last few years have demonstrated that Apple is in fact very interested in controlling and advancing the way its components are built ? not just its finished products. Eliminating external dependency is a repeating pattern with Apple, especially in strategically important areas.

Clearly spot-on analysis. Now, look at most Fortune 500 businesses.? Are they "interested in controlling and advancing the way [their] components are built -- not just [their] finished products"?? Are they "eliminating external dependencies" in strategically important areas?

Or are they, instead, outsourcing strategically important areas of the business?

I especially like Drance's analysis of the relationship with Samsung.? "This is proprietary technology designed in-house for products that make up as much as 70% of Apple's revenue, and it's in the hands of a competitor whom Apple is suing for patent infringement.? It's got to be driving Apple nuts."

Seeing this from the other side-? from Austin - this Samsung plant has been in the works for a long time in Austin and appears to have been producing other parts for Apple before this.? But this is the first time something has really been publicized as officially for Apple.? Indirectly, Apple has driven huge investment in Austin over the last few years, in addition to its commitment to grow its own campus. And Apple has previously purchased chip design talent and technology in Austin.

So Apple has a presence already - and maybe even the right kind of talent locally - to supervise production at Samsung's plant.? Moreover:

Just as interesting is the revelation that this new Samsung plant is located in the United States. We?ve been told for years that commodity manufacturing in the US was dead, but here we are with the heart of two industry-leading technology products being built there. Austin?s three-hour flight distance from Cupertino makes supervision cheaper and easier. Even more interesting: Reuters pegs the cost of the plant at $3.6 billion. That?s a lot of money, but not for a company with more than $80 billion in cash and an obsession with controlling its own destiny.

The fact that these chips are made in the US is really interesting.? It debunks all kinds of misinformation that we've been fed over the years about the profitability of running chip plants in the US.? And what's $3.6Billion between friends. The labor costs pale compared to the infrastructure costs.

The lesson here for BPM:

  • Keep strategic processes, components, and vendors close.
  • Exercise control and deep expertise even if you can't fully own the process yourself.
  • Location matters- it affects supervision costs and timeliness of information.
  • If you don't control a strategic process today, figure out how to become less dependent on a single partner for that process. How to mitigate your risks (as Apple did by buying Anobit).

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