Apple and Renesas: The economics of what Apple is doing with their mountain or cash

“There’s talk that Apple might be about to purchase a unit of Renesas, a unit that designs and manufactures the chips that drive the displays of smartphones,” Tim Worstall writes for Forbes. “This gives us an insight into the economics of what Apple is going with that vast cash mountain it has to hand. In the technical jargon it is looking to ‘vertically integrate’ but there’s a twist being applied to this old strategy.”

“It’s true that security of supply is a possible motivation for such a deal. But it’s also true that no one is going to buy a company that supplies Apple and then refuse to supply Apple,” Worstall writes. “For the Apple supply contract is part of what provides value to the company being purchased. And again, no other smartphone maker would purchase it just to deny Apple those chips. All the supply lines across the industry depend much too heavily on each of the other players for one part or another of the build set that becomes the finished phone.”

“However, there’s more to this than just Apple’s possible desire to secure the supply chain. Apple does, as we know, have a vast cash pile,” Worstall writes. “They’ve certainly got enough cash to purchase pretty much anyone they want to. They could, for example, buy GM if that interested them: but that wouldn’t be very sensible, given that there’s no obvious logic behind the two companies joining forces. Apple could buy a record company or two and thus make iTunes the exclusive source of certain ‘must have’ music. Ditto film production and Apple TV and so on. But that’s not the way that they seem to be thinking about their opportunities. These are examples of horizontal integration. Rather, Apple seems to be using that cash to do a form of vertical integration.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “tom599” for the heads up.]