“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,” writes The Wall Street Journal (June 24, 2020). 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 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.
Classroom discussion questions:
- What are the reasons Apple chose to “insource?”
- How is Apple achieving competitive advantage through OM? (Hint: See pp. 36-39 in your Heizer/Render/Munson text).