Apple analysts are ditching stock in the company’s third-party component supply chain, warning that the iPhone maker has begun bringing development of many pieces used inside its next-generation devices in-house.
Apple takes over
Apple clearly intends bringing as much of its supply chain in-house as possible.
Just over a week ago, UK company Imagination warned that it would cease using Imagination’s GPU designs within 18-24 months.
“Apple has asserted that it has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology,” the UK firm warned.
Apple has already hired numerous Imagination engineers to work on its own proprietary GPU processors, and is advertising for more.
That would have been that, I guess, but yesterday saw another UK-based Apple parts supplier hit by claims it may be losing Cupertino’s business. Dialog Semiconductor shares fell a dramatic 20 percent following a Bankhaus Lampe analyst warning.
“There is strong evidence that Apple is developing its own power-management integrated circuits and intends to replace the chip made by Dialog at least in part,” wrote analyst Karsten Iltgen.
The analyst cited speculation heard by themselves that Apple is building its own power-management chips.
There has been “a steady stream” of Dialog engineers to Apple in the last few years, a Bloomberg report claimed, noting that the smaller firm’s 1,500 engineers far outnumber the approximately 80 thought to be working on the project at Apple.
The number of people Apple employs to work on this component may not mean too much, given that it already boasts extensive chip expertise across graphics and processors.
Is it not possible the company is leveraging the combined strength of teams drawn from different disciplines?
This is a power management matter. Not in terms of electrical power, but in terms of control of the supply chain. Apple drives profitability for key firms in the mobile sector, and those profits are used to develop technologies then made available to competitors in the vertical markets it plays in. Apple management may no longer be interested in financing external R&D departments for its competitors.
This isn’t the first time we’ve seen an Apple supply chain decision impact third party component makers: Wolfson Microelectronics hit the ground fast once Apple ceased using its DACs, that company now sits within the Cirrus Logic family.
(The latter company also owes around 70 percent of its business to the Mac maker).
Current, core, and currency
Follow the current and you see signs of other activity within the Apple supply chain core. Credit Suisse this morning warns that Synaptics may also be at risk as its biggest client moves component design in house.
The company builds interface technologies, driver displays, and biometric tech for Apple. The analysts didn’t say there was a definite risk, just that it was more at risk than other companies that remain in the component supply chain.
The assessment isn’t unreasonable.
Synaptics left the chain in the iPod days, but its 2014 acquisition of LCD driver manufacturer, Renesas SP Drivers, apparently bought it back into the frame.
What makes that situation interesting is that Apple had itself bid for Renesas SP, and has (according to this report) hired engineers from that firm to develop its own LCD tech.
Et tu, ARM?
This storm of rumor and speculation is hitting stock prices across Apple’s supply chain.
While it’s open to question if this is just a case of investor jitters and market speculation, it does beg asking one more thing: Will Apple replace ARM?
There seems little reason for the company to do so, but the recent Softbank acquisition and use of ARM technologies in products from a range of competitors means it’s a question worth asking.
After all, if Apple wants to control the primary technologies used inside its products, why wouldn’t it want to develop a completely unique processor?
We can all recall the bad old PowerPC days when the fortunes of the Mac were damaged by Apple’s then partners, IBM and Motorola. That lesson must surely inform some of Cupertino management’s current decisions.
One thing is for sure: this game is in play and it’s hard to figure out what the next move might be when looking into CEO Tim Cook’s poker face.
Perhaps AAPL will grant a little more insight when it reveals its Q2 2017 results on May 2. I’m in no doubt this succession of significant moves reflects a company putting together the kind of foundations it needs for a highly significant product play.
Want a prediction? I can't help but imagine significant M&A activity soon -- why would Apple bet a billion on a ride sharing company, and not bet a similar amount on securing its own processor supply?
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