Two interesting pieces of news hit right before the holidays: first, that Apple has reportedly acquired Israeli flash chip maker Anobit; second, that Samsung is building the A5 processor, which is used in the iPad 2 and iPhone 4S, in a new facility in Austin, TX.
Similar to the 2008 PA Semi acquisition, the Anobit acquisition highlights a continued priority on internalizing improvements to hardware. Most people think of Apple as a hardware company in the industrial design sense, but not necessarily in the R&D or manufacturing sense. However, the last few years have demonstrated that Apple is in fact very interested in controlling and advancing the way its components are built — not just its finished products. Eliminating external dependency is a repeating pattern with Apple, especially in strategically important areas.
The importance of this policy is becoming painfully clear with the Samsung news. It was bad enough for Apple to be giving tons of cash to a competitor for commodities like flash memory, but this A5 news is far more serious. Not only is Apple more dependent on Samsung than we had previously thought, but we now know that Samsung has access to A5 schematics. This is proprietary technology designed in-house for products that make up as much as 70% of Apple’s revenue, and it’s in the hands of a competitor whom Apple is suing for patent infringement. It’s got to be driving Apple nuts.
Just as interesting is the revelation that this new Samsung plant is located in the United States. We’ve been told for years that commodity manufacturing in the US was dead, but here we are with the heart of two industry-leading technology products being built there. Austin’s three-hour flight distance from Cupertino makes supervision cheaper and easier. Even more interesting: Reuters pegs the cost of the plant at $3.6 billion. That’s a lot of money, but not for a company with more than $80 billion in cash and an obsession with controlling its own destiny.
It’s important to remember that Samsung is a Korean company with decades of expertise in this industry. That cost may involve legal and tax advantages that may not be available to Apple, an American company. Samsung’s experience in building and operating these plants cannot be discounted either. At the same time, though, Apple has the gravitas and the cash these days to hire such expertise. And I have to think that more than a few states in this country would give Apple a deal on some land, especially if there were jobs attached. (For real this time.)
Nearly 17 months ago, when Apple had “only” $46 billion in cash, I wrote that I wouldn’t be surprised to see Apple run more and more of its own manufacturing processes. That comment was prompted by the mere threat of product roadmap leaks from a rogue employee. Apple is a lot richer now, and the stakes are a lot higher. Apple is deep into a very serious competitor for both flash chips and processors. And in the last month, it has acquired a flash chip maker and learned the exact price of building a plant right here in the USA.