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Technology Stocks : Investing in Exponential Growth

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From: Paul H. Christiansen9/12/2018 2:09:07 PM
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Apple’s Vertical Strategy is key to Their Success

One of the things I learned very early on in my limited relationship with Steve Jobs was that he was a control freak. That was both good and bad. Bad in the sense that this was a factor in him getting fired in 1985 when he tried to take control of everything related to the Mac and the way he tried to manage Apple. It was also a good trait when channeled correctly. That started when he came back to Apple in 1997 and had learned a great deal about sharing responsibility with others under him while at NeXT and not being so anal that he had to be in control of everything.

This control freak persona also served him well in one key area too. Jobs was notorious for wanting to control everything he could relate to manufacturing and the supply chain. This drove him and his team to begin developing their processor for the iPhone and other products Apple would bring to market. While their original processor was designed specifically for the iPhone, 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. Jobs philosophy was that if they bought components off the rack, they would never be able to outdo their competitors.

I have been impressed with Apple’s semiconductor chops and the development of a robust set of semiconductor IP. Their design work has created a library of IP cores that they can build upon to use homegrown processors in current and any new products they will bring to market over the years. This vertical integration has become a significant differentiator for Apple and has helped them grow their profits exponentially. If they want to do something new to AirPods, Apple Watch, etc., they call upon this core IP and build on it to create new, customized features for newer versions of their products.

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