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On Apple’s Vertical Silicon Strategy

In his interview with Businessweek last week, Tim Cook stated:

We concluded we needed to do our own stuff because we were dreaming of products that couldn’t be done with silicon that you could go buy. So we designed our own and built an incredible team.

Steve Cheney has done a great job of unpacking the many advantages Apple will reap from this decision.

What is missed is that despite others vertically integrating, Apple still has no current peers underneath the hood, at the silicon level.

Despite today’s trend to vertical integration, Apple stands alone in its ability to integrate at the system level. The truth is silicon is the alchemy which causes consumers to marvel when they hold or touch an iPhone.

One of the extremely interesting trends to watch is how Apple manages platform control and buyer / seller bargaining power when it makes decisions on levels of modularity. Whereas others conflate vertically integrating as a single designation, it’s really a gradient of decisions that in sum make up the platform.

Together, Apple’s supplier bargaining power and silicon knowledge, mean that Apple can push merchant vendors harder, obtaining semi-custom chips that no one else can get.

Apple’s incredible silicon advantage will continue to help it to stay agile and maneuver in the face of unrelenting competition in the mobile world.