Platforms, Control, and Verticalisation

“Why am I selling my best image sensors to Apple?” asks Sir Howard Stringer, CEO of Sony and others, notably Samsung, must be wondering why, for so long, they supplied Apple with the wherewithal to thrash them in end product markets.

Without NAND, without displays, without foundries, without sensors, where would Apple be?

Now Samsung is reaping a bitter harvest of IP lawsuits from Apple locking it out of markets for its Galaxy Tab.

You might well ask: Why give your competitor a large part of his competitive edge?

So, does this mean vertically organized companies are going to keep their components largesse for their own end products?

Does it mean design and marketing companies will have to start making more of the componentry of their products in-house?

Apple, with 1,000 IC designers, may well be saying ‘Yes it does.’

All this was raised by Ravi Subramanian, CEO of analogue EDA specialists Berkeley Design Automation whose thesis is that electronics systems companies have to bring down the cost of their products if they are to appeal to the emergent middle classes of Asia, particularly in very fast growing economies like Vietnam, Indonesia and Bangladesh.

The only way for OEMs to do that is to make platforms which cross multiple products and to make them cheaper.

One way to make them cheaper is to drive down the micron trail and “50% of the design starts in 2011 will be on 40nm, and 80% of the revenues will be from 65nm,” says Subramanian.

And another way is to take control of all the main elements of an electronic system which, in Subramanian’s view are: apps processor; sensors and displays; power management; memory; connectivity and cost-reduce them.

“All of them need to be cheaper,” he says, adding “Panasonic want to reduce their TV BOM by 3x which requires a fundamental re-design.”

Subramanian reckons that the industry’s winners will need to control as many as possible of those five elements while driving down their cost.

And that can only be done by a verticalised industry.



  1. @ Greg : Well Olympus has just fired its Western educated MBA so perhaps that’s a start.
    I think LG is in the game though. They did have one bad range of TVs so Samsung got in but I think they will recover this. Sony is much harder but they are buying our Ericsson from Sony Ericsson so maybe they are on the right track again. Or maybe not 🙁

  2. I’m not sure the argument to go to lower microns is convincing.
    I’d be more inclined to point to old fashioned business fundamentals and say labour and shipping costs are where its at. I also think the existing margins are not there to support lowering some component costs further. With rising in-china costs I just have trouble believing that Ravi’s analysis is anywhere close.
    The idea that Sony and LG haven’t really been in the game in recent years is not new. That they were selling their best components to Apple rather than compete in the end game just highlights how clueless their executives have been this last decade. Sony’s number one to-do should have been to fire any western educated MBA’s and get back to their ‘home’ culture of growth by hard work.

  3. For an example, look at the recent fortunes of Philips TV division.
    They sold their stake in the LCD joint venture with LG in 2009.
    The result is that the critical component of the TV is something they now depend on their competitors to supply. It doesn’t take a business genius to see the flaw in this.
    But how can this be, because Kleisterlee was judged a “great great leader” by CNBC and the FT?

  4. Apple is doing more than just using 1000 existing IC designers – it is actively trying to recruit anyone on the planet with image sensor design experience to counteract dependence on Sony etc.

  5. Just a pity Panasonic have now started this quest by shutting some of their IC design teams and going outside for parts.

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