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Does the desirability of Apple products stem from the exclusivity created by their vertically integrated company philosophies?

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Vertically Integrated Manufacturing Scheme

*Fully controlled production line

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Increased Product Desirability

Exclusive Ecosystem / Costumer Loyalty

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System on Chip architecture allows Apple to produce chip sets which account for majority of the device's functionality. By utilizing this type of chip they are able to take complete control over manufacturing of this component on top of complete design control.

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Huge amounts of manufacturing control allows for deep and seamless device integration. Tightly knit device infrastructure

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Progressing within their exclusive ecosystem disadvantages other companies in advancing and improving because the achievements made by Apple in their impressively efficient chips are exclusive to their devices. Alternative technology brands are unable to utilize these advancements causing the industry to fall behind and pushing the majority of the market to lean towards the higher functioning product.

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Apple devices are designed to work seamlessly within their ecosystem. While they are promised to be compatible with other devices of other brands, their chip designs and manufacturing make it inherently difficult to work efficiently and productively with other devices. This causes customers to switch their devices to the Apple alternative*

*product desirability

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Apple owns 48% of smartphone market share and 80% of American teens own or have owned an iPhone.

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"Everyone has an iPhone, I can't be seen with an Android"

Desire to fit in

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Teenagers, but more specifically, school children, predominantly communicate, out side of school, through group chats and group calls. Over the years these social activities have taken place mainly over iMessage and FaceTime, both Apple services which cater specifically and exclusively to Apple devices. Kids who do not have these devices cannot participate in the same social activity as Apple device owners; this pressures children into buying or begging for Apple devices.

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KEY FINDINGS

Our 46th semi-annual Taking Stock With Teens survey was conducted between September 4 and September 27

Regional responses were 36% in the South, 29% in the Midwest, 21% in the West and 14% in the Northeast

37% of teens hold a part-time job - down slightly from 40% spring '23

Teen "self-reported" spending was down 1% Y/Y to $2,316, and down 4% vs. from spring '23; parent contribution was 62% vs. 60% last spring '23

Males led the increase in teen spending, with upper income male spend up 11% Y/Y and up 11% vs. spring '23, while female spend was down 8% Y/Y and down 2% vs. spring '23

Female fashion spend was down 7% Y/Y with lower spend across apparel (-9% Y/Y) and shoes (-5% Y/Y), offset by strength in accessories spend (+8% Y/Y)

For upper-income teens, food was the No. 1 wallet priority for male spending at 25% share, while clothing remains at the top of the female wallet share at 28%, down 260 bps vs last fall '22 when female clothing wallet share peaked at 30%

Since fall '22, shopping channel preferences have shifted toward off-price (+545 bps Y/Y) and online only e-tailers (+121 bps Y/Y) and away from specialty, discount, and outlet dropped (-162 bps Y/Y, -440 bps Y/Y, and -81 bps Y/Y, respectively)

The core beauty wallet (cosmetics, skincare, fragrance) stood at $324/year (+23% Y/Y), led by cosmetics (+33% Y/Y)

Cosmetics held the highest priority of beauty spending at $127, the highest level seen since '19

Weekly usage of VR devices declined to ~10% from ~14% in spring '23. But 31% of teens now own a VR device, up from 29% Spring '23

Video games are 11% of male teen wallet share (vs. 12% fall'23), and 33% expect to purchase a NextGen console within two years

SQ's Cash App ranked No. 1 for most preferred peer-to-peer money transfer app at 50% vs. PYPL's Venmo at 36%

For BNPL, teens said they used PayPal "Pay in 4" most frequently, followed by SQ's Afterpay

Apple Pay ranked No. 1 for payment apps used within the last month at 42%; followed by Cash App at 27%

55% of teens cite Amazon as their No. 1 favorite e-comm site; SHEIN, Nike, GOAT, and Temu took spots No. 2-5

Nike remains the No. 1 brand for all teens in both apparel (35%) and footwear (61%)

New Balance surpassed Vans as the No. 4 favorite footwear brand, New Balance gained ~200 bps of mindshare Y/Y while Vans lost ~350 bps of mindshare Y/Y

Crocs ranked No. 6 and Hey Dude ranked No. 7 favorite footwear brand among all teens, gaining ~30 bps and ~50 bps of mindshare Y/Y respectively

On Running and Hoka One One were the No. 8 and No. 13 favorite footwear brands respectively for all teens, and the No. 5 and No. 3 favorite athletic footwear brands for upper income teens respectively

e.l.f. remains the No. 1 cosmetics brand, increasing 13 points Y/Y to 29% for female teens

Specialty retail for beauty purchases reached the highest level yet at 79%, and mass/dept/drug reached a new low of 11%

Sephora surpassed Ulta for the No. 1 preferred beauty shopping destination (Ulta at No. 2) and held the strongest loyalty membership at 67% (Ulta at 60%)

Chick-fil-A remains the No. 1 favorite restaurant at 16% share, followed by Starbucks (13%), and McDonald's (9%)

Teens that consume or are willing to try plant-based meat hits all time low with 35% in fall '23 vs. 49% in spring '21

Teens report highest intentions to eat more or the same amount of MDLZ's Clif Bar; CPB's Goldfish remain most preferred snack brand

Monster (28%), Red Bull (23%) and Celsius (16%) are teens' favorite energy drink brands; Celsius at 16% is well above its ~10% market share

70% of teens have used Spotify over the last six months (up from 68%), with 46% of teens opting to subscribe/pay for Spotify (up from 44%)

TikTok improved slightly as the favorite social platform (38% share) by 80 bps vs. spring '23. SNAP was No. 2 with 28% share, followed by Instagram (23%)

Teens spend 28.7% of daily video consumption on Netflix (-220 bps vs. spring '23) and 29.1% on YouTube (+100 bps vs. spring '23)

Mobile device remains the No.1 preferred method for customer service interactions (50% share); Text/SMS shows the best multi-year gains

87% of teens own an iPhone; 88% expect an iPhone to be their next phone; 34% own an Apple Watch

View the press release
ABOUT THE SURVEY

The Piper Sandler Taking Stock With Teens® survey is a semi-annual research project that gathers input from 9,193 teens with an average age of 15.7 years. Discretionary spending patterns, fashion trends, technology, and brand and media preferences are assessed through surveying a geographically diverse subset of high schools across the U.S. Since the project began in 2001, Piper Sandler has surveyed more than 248,283 teens and collected over 60.7 million data points on teen spending.

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Our 46th semi-annual Taking Stock With Teens survey was conducted between September 4 and September 27 Regional responses were 36% in the South, 29% in the Midwest, 21% in the West and 14% in the Northeast 37% of teens hold a part-time job - down slightly from 40% spring '23 Teen "self-reported" spending was down 1% Y/Y to $2,316, and down 4% vs.

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Logging into the proxy (Rutgers University Libraries)

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"People who are really serious about software should make their own hardware." - Alan Kay

As part of EE Times' look at Apple's march to becoming the first trillion-dollar company, I will look at their "modern" semiconductor work.

To do this, I first need to think about the iPhone. It is the defining product on the road to the trillion-dollar milestone. When the iPhone was unveiled on Jan. 9, 2007, it was a departure from the existing phone paradigm.

Steve Jobs described it as "a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough internet communicator." That day, he also introduced a new operating system: iPhoneOS, aka iOS.

Steve Jobs quotes Alan Kay at iPhone 7 launch.

What about Alan Kay's quote above? Steve Jobs included it in the 2007 iPhone launch. At face value, it captured Apple's need to design its own phone, to run its new iOS software, which brought about a new way of interacting with phones - think touchscreen, virtual keyboard, and swipes.

We did not know that this quote would soon apply to Apple's jump into a much larger semiconductor effort. Apple was about to go vertical.

Early days and the A4
Why would Apple want to bring large-scale semiconductor design in-house? It is an expensive endeavor.

Would they be able to design comparable, let alone better, ICs than X or Y semiconductor company that was already in the space? Surely, it was too big a risk.

Recommended:

Apple's Trillion Dollar Fairy Tale, Warts and All

But in the spring of 2008, Apple announced the acquisition of PA Semi, a largely unknown processor design house focused on Digital's StrongARM technology. Apple said that they wanted to further differentiate their products. Later, rumors started to emerge that Apple acquired Intrinsity, another processor designer. They were marketing their Hummingbird Arm-based CPU. This latter acquisition was confirmed in April 2010.

On Jan. 27, 2010, Steve Jobs took to the stage to introduce the iPad and the Apple-designed A4 SoC. I thought about the possibly impending tablet and its silicon a week before the keynote. I thought a tablet would require silicon that is between that in the iPhone and a MacBook. I also asked "...what happens if you could design your own processor with blocks tailored solely to your device and its application?"

The A-series, and what I consider the "modern" Apple semiconductor effort, was underway.

When my co-authors and I looked at the A4 for EE Times, we found considerable block level similarity with Samsung's S5PC110; i.e., an Arm-based SoC of the day. It was also found that the Arm CPUs were identical. Our A4 die photo from the EE Times article is shown below. The A4 did not seem to be a differentiating SoC, but there was not much time between the above acquisitions and the 2009 date code on the package in the publicity shot.

Annotated A4 die photo (Source: MuAnalysis)

A-series milestones
After the jolt of actually introducing an in-house SoC, I would say that the next major milestone came with the A6. With it, Apple introduced an in-house-designed CPU. This is no small feat.

Next page : Custom circuits and vertical integration

At the time, Chipworks commented that the architecture appeared to be a manual layout. A die photo of the A6, with annotated CPU, is presented below. It showed the level of commitment to Apple's semiconductor group. The A7 brought the so-called Secure Enclave to store and process fingerprint data from the TouchID sensor. Along the way, Apple integrated an Image Signal Processor and their Motion Co-Processor, to name but two blocks.

Annotated A6 die photo (Source: Chipworks)

Let's fast-forward to 2017's A11. A die photo of this SoC is shown below. The A11 incorporated Apple's first in-house-designed GPU and their so-called Neural Engine. Both are important bits of design. In the press release for the iPhone X, Apple indicates that both take part in machine-learning functionality. In particular, FaceID and Animoji are said to be enabled by the Neural Engine.

I have glossed over quite a bit, including not jumping into the performance of the major blocks. Of importance here is the design and inclusion of two more blocks of the SoC - namely, the GPU and Neural Engine - that are central to iPhone performance and experience. I see both blocks as important going forward because they contribute to machine learning.

Annotated A11 die photo (Source: TechInsights)

Custom circuits and vertical integration
There is plenty of evidence of Apple's growing design prowess. Is this design differentiating the iPhone from other phones, as Steve Jobs hoped when he launched the A4?

Let's consider FaceID as an example.

Apple might consider a large feature such as facial recognition as being something of interest. It might acquire one or more companies to assemble IP around at least some of the technology. Some technology will be implemented in software and others may be implemented in hardware. A block, such as the Neural Engine, is identified and it is designed. At the same time, other blocks, such as the Secure Enclave, would be identified as being useful, now processing the facial image data instead of fingerprints.

Apple has stressed the coordination of software and hardware engineers at many keynotes over the years.

One can almost hear the meetings between the teams:

"I need HW that can run routines A and B."

"I can give you most of that, but could you modify the routine such that they run this way in my block?"

And on it goes until the hardware and software are built and brought together. The circuit blocks may well be useful only to Apple after such a process, but that is fine as the semiconductor group only has one customer.

On an even finer level, and at a higher degree of integration, one might envision certain routines, or bits of routines, of the OS actually encoded at the transistor level. "I could put that calculation that is called regularly into transistors to save software cycles."

Yes, one loses flexibility, but the performance gain could be worth it. I have mused about this from time to time, as it seems the pinnacle of hardware-software integration.

Designing for one customer
The role of the iPhone is clear. They are sold to customers and revenue is earned.

The role of semiconductors is not as clear because there are no external sales; there is no direct revenue. All of the semiconductor products are for "internal use only." Does everyone buy an iPhone because it includes an A-series processor? The answer is surely no. Does the iPhone have capabilities that might be impossible, perform poorly, or be more expensive without the A-series? I think the answer is likely yes.

Again, let's look at FaceID.

It is safe to say that it is an important feature of the iPhone X. If Apple designed the SoC but not its own blocks, it would need to source an appropriate machine-learning IP core. It may also need to rethink the GPU as it is said to share in some machine-learning tasks. Furthermore, Apple would need to write software that runs on these blocks. The scenario is even more intractable if there is less vertical integration and Apple sources a whole SoC. Here, in a bad case, a secondary IC may be required to perform machine learning, implying more board space and cost.

Do the A-series SoCs differentiate the final product? I would have to say yes. On one level, Apple can focus on design that is specific to its needs and desired features. They are designing for one customer, presumably reducing the compromises needed to appeal to many. Furthermore, Apple does not have to design the best cores out there. It must design cores that perform the best with iOS. Apple is able to tailor the circuit and block design to meet their needs.

Where Will Apple Go from Here?

It is worth noting that Apple has made some bold steps along the way. As they move major blocks to their own designs, they are placing more responsibility onto their designers. Also, even though semiconductor revenue is indirect, a poorly performing A-series chip would most likely result in reduced sales.

Looking forward
So far, I have only talked about the iPhone and the A-series SoCs. This is only part of the equation.

Apple has expanded its semiconductor portfolio into quite a few products now. One can look to the S-series in the Apple Watch, the W-series in the AirPods (and Apple Watch), and the T-series in an expanding number of MacOS systems. These all present interesting features in the final product.

Would the AirPods have been possible without the W1? At their launch, the AirPods seemed to stray from the standard Bluetooth practice of having a wire between the left and right channel. Did the W1 allow the transmission of left and right channels to the untethered AirPods? I thought about the AirPods and noted an eerie resemblance between the AirPods' features and the acquired Passif IP. I think that the W1 was differentiating.

I do not know about what Apple is dreaming in their development labs, but one can envision some interesting possibilities with the semiconductor building blocks that are now in place. When the T1 emerged, I thought about its possible application to the Apple TV remote. Is there a market for instant, secure shopping from your TV?

Apple has shown its semiconductor design prowess and established an interesting bit of semiconductor IP. One might think of their design work as creating a library of IP cores that they can use to bring features to their end products. The vertical integration of their semiconductor design efforts has become central to numerous revenue streams and the Apple ecosystem. The semiconductor group does not need to be the best designer of everything they touch; they need to be the best designer for their customer.

- Paul Boldt is president at ned, maude, todd &rod inc., an Ottawa-based information service company focused on technology. Its target markets range from finance and investing to IP law and management consulting. Prior to this, he spent six years drafting and prosecuting patent applications at one of Canada's largest IP law firms and three years reverse-engineering integrated circuits. Paul holds a Ph.D. from the Department of Materials Science at McMaster University.

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Apple Goes Vertical & Why It Matters - EE Times

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Do Apple's A-series SoCs differentiate the final product? Apple can focus on design specific to its needs and desired features. It's designing for one customer, presumably reducing the compromises needed to appeal to many.