Monday 19 December 2011

The Apple Never Falls Far From the Tree

Many were taken by surprise last week when it was announced that the Apple Corporation has decided to open a development centre in Israel.  The main reason for the surprise, is the fact that Apple's strategy to date has been to centralise all of its development effort at its corporate headquarters in Cupertino, California.  The Israeli development centre will be the first one that Apple will open outside of the Cupertino headquarters.  Has this new step been enabled by the recent departure and demise of former Apple CEO and icon, Steve Jobs?  Perhaps so.  Upon closer examination, however, it becomes clear that the direction in which new CEO Tim Cook is taking the company, is not far removed from the strategy which Jobs pursued so successfully prior to his death.

Apple's meteoric rise in recent years has largely been driven by the innovation of its range of new products.  This has not been the only contributing factor to Apple's success.  In addition to bucking the trend by developing products and features which are different and exciting in a world which is oversupplied by all manner of electronic goods, Apple has also succeeded in achieving gross profit margins in excess of 40% on its sales.  This is far higher than its peer group of hardware vendors.  The way that Apple has achieved this, is by taking full control of its supply chain.  This has not necessarily required the acquisition of key suppliers, although this has been done on more than a few occasions.  Rather, the way in which this control has been achieved is by securing large volumes of required components ahead of time.  By doing this, Apple has succeeded in avoiding seasonal fluctuations in supply volumes and prices, even though it has required a substantial commitment of capital.  It is this strategy that has led Apple to Israel, and ultimately led it to the decision to establish a development centre here.

Apple's products rely heavily on flash memory, and the company spends billions of dollars a year in acquiring these components.  Israeli company Anobit has been a supplier of NAND flash memory to Apple, and develops systems for improving this component.  Apple has decided that acquiring Anobit could save it 10-20% on its purchase of flash memory each year, and Anobit has been put firmly on Apple's shopping list.  Acquiring Anobit may also allow Apple to cut off the company's cooperation with Samsung, one of Apple's fiercest rivals in the field of smartphones and tablets.  Anobit seems also to have been a catalyst for Apple's interest in Israeli technology, and appears to have influenced the decision taken by Apple to set up a development centre in Israel.  This centre will focus primarily on semiconductor development, a field that Israeli companies have excelled in over the years.

Even though the marriage between Apple and Israeli technological development seems obvious to some, it still requires a champion within a large company to drive through an initiative of this sort.  In Apple's case, the  decision to open a development centre in Israel has been championed by former Haifa resident Johnny Srouji, who was hired by Apple 3 years ago.  He has risen in the ranks of Apple to the level of vice president.  Now, the Israeli press is full of details of the fact that Apple has been searching for premises in Haifa which are reputed to be large enough to house as many as 250 employees.  Israeli high-tech veteran Aharon Aharon has been hired to head up the new Apple development centre.

Companies such as Intel, Microsoft and Google have enjoyed tremendous success by using Israeli brainpower.  It is no secret that it was Israeli engineers who helped Intel to break through significant barriers in the development of their processors.  This has contributed, in no uncertain terms, to Intel's continued successes over the years.  Now, Apple has decided to also tap into this pool of talent to help take its products to the next level.  It is expected that Israeli expertise in flash storage could help to speed up iPhones and iPads, as well as the data transfer between them.

Apple representatives have said that the company will continue to open the new development centre even if the deal to acquire Anobit does not go ahead.  The truth is, that either one of these acts on Apple's part would come as a huge compliment to Israeli hi-tech and engineering.  Both deals being done would surely make Apple a substantial player in Israel's technology sector, and will place Israeli technology at the forefront of the world's leading-edge products.  This is a great achievement for the previous generations of Israeli engineers, and a fantastic incentive for the next generation in order to keep Israeli hi-tech to reach greater heights.

Despite the fact that Israeli technology has already received recognition as amongst the best in the world, the decision by Apple to open its first development centre outside of California is a fantastic accolade.

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