Screens, chips: why Apple is increasingly freeing itself from its subcontractors

Posted Jan 18, 2023, 12:26 a.mUpdated on 18 Jan 2023 at 12:27

Finished products like iPhones, content ranging from movies to series… and even electronic components. Apple is increasingly trying to manufacture the critical small parts for its own devices. This week, the group has taken a new step, launching its two newest generation chips, the M2 Pro and in particular the M2 Max. The presentation was in one line: it will be the “most powerful and energy efficient” chip in the world, according to Apple. Thanks to that, the new Macbook Pro will offer performance… six times higher than competing laptops using Intel’s most advanced chips.

Intel isn’t the only one affected by this desire for autonomy. Apple today works with more than 190 suppliers in 50 countries. Among them, LG, Sony, Samsung… But the Tim Cook group wants to be independent within a few technology bricks. In 2024 or 2025, Apple could install its own modem (the chip that allows you to make calls or connect to Wi-Fi) in iPhones. If the project is implemented, Qualcomm and Broadcom can drink the trophy well. The two manufacturers make up 20% of their turnover with Apple each, or 10 billion and 7 billion dollars, respectively.

In 2024 or 2025, Apple may also replace the plate (screen under glass) of the Apple Watch with its own plate, then do the same to the iPhone. By the way, Apple will switch from OLED technology to microLED, which will allow for brighter and energy-efficient screens but about twice as expensive. “Apple has invested more than $2 billion in microLEDs,” recalls Eric Virey, senior analyst in charge of “displays” at Yole Intelligence in California. They will be the first to use this technology. No one else is making the necessary investment. »

Reduce harm

This empowerment strategy, which has also been carried out by Samsung and Huawei especially since the US sanctions, is nothing new. 30 years ago, every mobile phone manufacturer designed its own chip. The model went horizontal during the transition to 3G, which allowed Qualcomm or Intel to emerge. But manufacturers are now returning to a certain form of verticality.

For example, Apple has been working on its modems since at least 2018. To address the odds, the group even bought Intel’s modem business in 2019 for $1 billion. Its ventures into microLED screens began in 2014, when Apple purchased the fledgling LuxVue.

Currently, several Apple products are already running with in-house products. All Mac computers work well with M1, M1 Max, M1 Ultra, M2 processors. Only the 6,500 euro Mac Pro is still running on Intel. The iPhone 13 and later all feature the Apple A15 or A16 chip. This chip was designed by Apple but technically manufactured by the Taiwanese giant TSMC. Similarly, microLED could be manufactured by Germany’s Osram but assembled by Apple.

Supply chain disruptions since the pandemic are now pushing Apple to be more empowered. By internalizing, the apple brand reduces harm and controls the chain better. Apple also captures more value and can differentiate itself, with technological leaps. “The goal is to have proprietary technology. On the screen, Apple relies heavily on Samsung. However, South Korea itself is a smartphone manufacturer and therefore a direct competitor, ”recalls Eric Virey.

Allocate R&D costs

Admittedly, Apple’s economic and symbolic weight means that the group can easily impose its terms on subcontractors. In fact, it often takes precedence over other large contractors. However, Apple is not immune to geopolitical upheavals, especially between the United States and China. The brand assembles almost all of its iPhones there. With the spike in Covid cases in China, iPhone shipments in the quarter will also drop 14% compared to last year.

However, empowerment is far from a calm river. “Several years ago, Apple invested $2 billion in sapphire to replace display glass. Within 8 months, it all fell apart,” recalls Eric Virey. Internalization also requires increasing sales to spread out the enormous R&D costs. However, the smartphone and PC market looks bleak. One question remains: will Apple sell this technology to the rest of the industry, like Samsung? Not as long as these components offer a competitive advantage, a priori. But things move really fast in the tech world…

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