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Electronics Manufacturing – M528

Who has their fingers in the Apple pPie?


Introduction
Apple Logo
This article will be exploring the relationships that Apple has with its various partners in crime. Also, the article will try and discover how useful these partnerships are to Apple, and to the partners themselves. The partners in question are Intel, Cingular and Samsung.

There are several other relationships that Apple has developed over its years of success, but these three are the most notable of them all, and these partnerships have allowed Apple to continue to flourish and enjoy success within its market. Alongside this, these partners have also seen benefits from their relationship with Apple (or soon will in the case of Cingular).

Intel are providing Apple with the processors for all of their latest model laptops and desktop computers, and are also, if somewhat secretively, developing new, next generation technologies with them. Cingular, a wireless coverage provider in the US, is the sole provider of the service for Apple's new iPhone, due for release in June. Samsung, a digital electronics company, are providing Apple some of their flash memory modules at a discounted rate.

Overall, I feel that the partnerships between these companies benefits all of parties involved. But to what extent?
Intel Logo
Intel's Slice of the Pie

Prior to their relationship with Intel, Apple used IBM's PowerPC range of processors to power their range of laptops and computers. They had been using the PowerPC range since 1994, and in 2006, the phased switch to Intel processors began with the Mac Mini. So why this sudden change of direction? According to Stephen Shankland of CNETnews.com, the relationship between Apple and IBM had evolved and became rocky at times. Apple had criticised IBM for some problems with its chip delivery, and also, more recently, Apple desire a greater range of IBM's PowerPC processors, however IBM did not see the low-volume business that this would provide to be beneficial to them (Shankland, S., 2005, Para. 6).

Some sceptics were worried that the Apple - Intel partnership would only last for two years, however, according to Paula Rooney's interview with Pat Gelsinger (Intel's Senior Vice President), It's far from done. Gelsinger also states that Intel is currently working with Apple on some new projects, involving next-generation technologies, but was reluctant to go into details about these (Rooney, P., 2006, Page 2, Para. 2).

This relationship may not have proven to be of any use to Intel as of yet, as they reported a decline of revenue over 2006, the first year in which they partnered with Apple. However, Intel shed it flash business, no longer delving deeply into that part of the microelectronics market, which is quite likely to have been the cause for this decline in revenue (Sellers, D., 2007, Para. 2).

Clearly there were risks for Apple on the transition from IBM to Intel, as the change of chip means that a lot of the software supported by Mac OS X had to be re-written to run on the new x86 chip supplied by Intel (such as their Pentium range). However, the advantage that Apple had, was that Mac OS X, already ran on Intel's x86 chips, meaning little redevelopment on their side of things.

One of the big advantages that Apple may see from this relationship, is the possibility of Windows based games being available for Mac users, due to the fact that the Intel chips used in the Mac range, is identical to those used in Windows based PCs. It could also benefit from the fact that it will now run a multitude of Windows programs, which may well have been a deterrent in the past, with some people being attracted to the design of Apple's machines, but not wanting to switch due to the lack of compatibility (Markoff, J., 2005, Para 8-9).
Cingular Logo
Cingular, the bully of the wireless networks

Cingular's relationship with Apple effectively smacks the back of the hands of any other wireless company that reaches for a slice of the Apple pie. Its deal with Apple means that it will be the sole network coverage provider for Apples latest product, the iPhone, due for release in June of this year. Cingular kept up the pressure on Apple to block out development for the iPhone on the T-Mobile, Sprint, Verizon and Alltel networks. This is estimated to reduce their potential market by around 25 million users. This is a selfish business act on Cingular's part, that will obviously give them some large benefits in the iPhone market, as it will own a monopoly of network coverage for the iPhone. So how do Apple benefit from this relationship?

Apple and Cingular collaborated to allow the iPhone to make full use of Cingular's EDGE (Enhanced Data Rates for GSM Evolution) network, allowing faster data rates than many other networks, although not as fast as some are capable of (such as 3G) (Segan, S., 2007, Para. 6). This relationship guarantees Apple's iPhone to have a two year (minimum) lifespan, due to the fact that the contract with Cingular is a two year one, meaning that people will be extremely reluctant to switch network providers/phones due to the disconnection costs and payment finishing with Cingular.

Steve Jobs (Apple's CEO) stated (with regards to Cingular) "We come from two different worlds, yet we've worked wonderfully together" (Jobs, S., 2007). According to Rachel Konrad, a journalist for the San-Diego Union Tribune, such contrasts in the business models may lead to strains in the tight collaboration required to launch such a significant product of this nature (Konrad, R., 2007, Para. 11). Konrad also states that the one similarity that the companies share, their insistence on owning the user experience (through their own branding etc.), may lead to problems with cooperation between the two. After all, the product is Apple's, but the bill will be Cingular, and the users will be Cingular customers.
Samsung Logo
Samsung, storing the success with their flash memory

The partnership between Apple and Samsung helps both companies a great deal. The deal that Apple has with Samsung, allowing them to source 40% of their flash memory module production from Samsung at a discounted rate, means that Apple can mask this information from the general user, and gain significant profit increases, due to the fact that the cost of the memory is around 50% less than it would be if it was sourced from a different company. The memory from Samsung is used in their 2GB iPod Nano devices, where previously, they used Toshiba to provide their memory (Wikipedia, n.d., Para. 19).

With this partnership, Apple benefit from the significantly reduced price of memory modules, and without changing the price of their iPod nano, they gain a relatively large boost in profits. Samsung benefit, by guaranteeing that a large amount of their produce and will be sold (to Apple), meaning a continuous source of income for them. Samsung also benefit from the fact that Apple will view them in great stead with this partnership after negotiating the deal, and will therefore be more likely to use them for future products as well. This has been supported by the fact that Apple are now switching to a Samsung decoder in their iPod range, rather than their previous use of a SigmaTel one (Taylor, C., 2006, Para. 1).

Also, Apple have switched their iPod Nano from an ARM processor provided by SigmaTel, to a Samsung version of a similar chip. This news has obviously dealt a significant blow to SigmaTel as they have lost a great deal of custom from Apple, but also boosted Samsung's involvement in the production of the iPod, and therefore their profitability and notability within Apple.

Conclusion, who benefits more from the fingers in the pie?

From this research, it appears to me that Cingular see a more significant benefit from their deal with Apple than Apple do themselves. Cingular's pressure on Apple to restrict (or even block) development for other networks, may well have caused Apple to lose a significant chunk of its potential market, and given Cingular a monopoly over the network coverage of the iPhone. Apple do receive benefit from Cingular though, in the form of the EDGE network, and the two year contract, but these benefits are, in my opinion, outweighed by the costs of the network restriction.

Of the relationship between Apple and Intel, Apple seems to be the successor in terms of benefit, despite initial worries that the switch of processors may have caused an uproar in the Mac developer community. Moving their processor provision from IBM to Intel allowed Apple to greatly expand, and further develop their range of laptops and desktop computers, as IBM's restrictions on the product road map for the PowerPC greatly hindered Apple and their lust for improvement. Hopefully in the not too distant future, we may see more windows based programs and games reaching the Mac environment (due to the Intel chip architecture being identical on Mac and Windows PC alike), and therefore attracting a significant increase in Apple followers. Intel benefit from this relationship as they now have the best of both worlds, so to speak. Their long term relationship with Microsoft doesn't seem to have suffered a great deal with the addition of Apple to their customer portfolio, and having Windows based processors and Mac based processors, allows them to greatly increase their market share (already a significant majority) by providing for both.

Apple's partnership with Samsung allows for Apple to gain from a rise in its profits, due to the lower cost of components. Samsung also gain from the increased interest from Apple, after negotiating the deal to reduce their component prices. In this partnership, Apple seems to gain the most, with its 2GB iPod nano (the one that uses the Samsung memory chip) selling in significant quantities and therefore Apple seeing a rather large profit (in comparison to other models) on each one.

Overall I feel that Apple reap the benefits from all of its relationships, some more than others, with Cingular rather limiting the gains from their relationship.

References