Tag: iPhones

OM in the News: Apple’s Spectacular Failure

In seeking to build a key part for its new iPhones, Apple set out to design a chip that would allow it to cut ties with Qualcomm, a longtime supplier and bitter foe. But the new iPhone models just unveiled are missing a proprietary silicon chip that Apple had spent several years and billions of dollars trying to develop in time for the rollout, reports the Wall Street Journal (Sept. 25, 2023). 

Apple iPhone 15 Pro Max and a Qualcomm modem chip.

The 2018 marching orders from CEO Cook to design and build a modem chip—a part that connects iPhones to wireless carriers—led to the hiring of thousands of engineers. The goal was to sever Apple’s dependence on Qualcomm, which dominates the modem market. (Apple paid more than $7.2 billion to Qualcomm for chips last year). But recent tests found Apple’s chip was too slow and prone to overheating. And its circuit board was so big it would take up half an iPhone, making it unusable.

Apple hasn’t publicly acknowledged its modem project, much less its shortcomings.  Engineering teams working on Apple’s modem chip had been slowed by technical challenges, poor communication and managers split over designing the chips rather than buying them. Teams were siloed in separate groups across the globe. Bad news from engineers about delays or setbacks– leading to unrealistic goals and blown deadlines–were concealed.

Apple believed, first,  it could replicate the success of the microprocessor chips it designed for iPhones. Adoption of those chips fattened profit margins and improved performance for billions of devices. Second, Apple and Qualcomm had bickered and swapped accusations of lying and theft.

Apple had found that designing a microprocessor, a tiny computer to run software, was easy by comparison. Modem chips, which transmit and receive wireless data, must comply with strict connectivity standards to serve global wireless carriers. A brute force of thousands of engineers, a strategy successful for designing the computer of its smartphones and laptops, wasn’t enough to quickly produce a superior modem chip. Three years ago, Apple began replacing processor chips from Intel, used for years in Macs, with a proprietary chip that allowed its laptops to run faster and generate less heat. That Apple chip saved the company $75 to $150 on every computer.

Classroom discussion questions:

  1. Why was it harder to design a modem chip than a microprocessor chip?
  2. What did Apple do wrong?

OM in the News: Taiwan, Chips, and Global Supply Lines

“If anyone hits Taiwan, or there is a serious disruption . . . the tech and electronics industry worldwide is basically screwed,” says the founder of chip provider MA-tek in Financial Times (June 1, 2023). Taiwan is best known for making cutting-edge semiconductors. But its companies also turn out other crucial components from printed circuit boards to advanced camera lenses and they run huge device assembly operations in China. This has created a triangle of critical interdependence between Taiwan, China and the US that has deepened even as tensions have risen.

iPhone 12 Pro Costs Around $406 to Make

To understand, let’s look at the iPhone. It is one of the most successful consumer devices of all time: 2.4 billion sold since its launch in 2007, racking up over $1 trillion in revenue for Apple. Its success rests on a sprawling Asian supply chain producing chips, displays, speakers and more on an almost unimaginable scale. At its heart lie both mainland China and Taiwan. Each iPhone needs some 1,500 different components. Nearly 70 per cent of Apple’s top suppliers, making everything from processors to casings, are based in either China (26%), Taiwan (23%) or the US (18%).

The most valuable components — including core processors, 5G modems, Wi-Fi chips, and premium camera lenses — are made inTaiwan. All told, the island’s suppliers account for nearly $200 of the total materials bill for each iPhone. These chips, however, are designed by Apple, or otherU.S., Japanese or European chip developers, such as Qualcomm, Sony, and Bosch.

Chinese suppliers are concentrated in less technologically demanding areas, like product assembly and mechanical parts. The number of China-based suppliers has overtaken all other countries to become the largest source over the past few years. They have also started to move up the supply chain, and now make some of the advanced OLED screens for iPhones. China is also where 95% of all iPhones are assembled, a figure that has changed little since its launch. The country is a major market for Apple, too, providing 1/5 of its total annual revenue. Complicating the picture is the fact that many Taiwanese and U.S. suppliers serve Apple from hundreds of facilities in mainland China.

Without any of these components, an iPhone would not be an iPhone. But a formula that has worked for 15 years is being put to the test as geopolitical tensions rewrite the rules of tech manufacturing.

Classroom discussion questions:

  1. Western nations this month vowed to “reduce excessive dependencies in our critical supply chains.”   How can they do this?
  2. What has brought this supply chain issue to a head?