The advent of product cycle chips is in practice a function of the market share dominance of Apple and Samsung. As share of these 2 customers has risen (coincident with the explosive growth of smartphones and tablets), it has created an investment category based on their suppliers. This is not to suggest that the dominance of these 2 OEM’s will persist in perpetuity but demonstrates the change in Semiconductor sinking into Products.
Early on, Apple took a vertically integrated approach, recognizing the value of integrating chip design, with hardware, software, and firmware. While this strategy has failed historically, Apple has achieved critical mass, and they have not needed to take on the high-fixed cost of chip fabrication facilities. At its most basic, this has robbed the chip market of a merchant opportunity.
Both Samsung and Apple manufacture their own Application Processors [AP’s]. And while capacity constraints have led to a healthy use of merchant silicon, over time we see risk to growth in the high-end AP market due to captive suppliers. Another fall-out of this approach is that Apple, at least for now, does not require the most leading-edge chip design / manufacturing, given it can leverage other hardware elements as well as software to improve the user experience.
Meanwhile, as demand is concentrating in fewer OEM’s, normal seasonal patterns have shifted (based on the calendar) and are increasingly focused on product launches. The recent release of the iPhone5 and the forthcoming launch of Windows8 are good examples of how customers defer calendar spending in favor of product launches. For chipmakers, this means that the typical rush of demand during certain seasons (that often results in a fight for capacity) is now shifting to customer product launches.
There are several headline socket losses in the Apple supply chain that have had deleterious impacts to chip names: Portal Player, Broadcom GPS and Audience. It might be argued that the growth of Apple and Samsung is the worst thing that could have befallen chip names.