The iPhone makes and breaks entire companies

 

Welcome to First Click, a daily essay written by The Verge staff in which we opine on lives lived in the near future.

Yesterday, Imagination Technologies, the company responsible for designing the graphics chips inside Apple's iPhone, notified the world that it would be losing that job at some point within the next two years. Swiftly, the stock market reacted by scything a full two-thirds off Imagination's stock price.

My initial reaction was to feel sick on behalf of Imagination, whose market value fell off a vertical cliff in less time than it takes most of us to brush our teeth. The company's designs have served iPhones and iPads reliably for years, but Apple is apparently planning to start designing its own graphics processing units (GPUs), pursuant to its ongoing effort to control as much of its supply and production chain as possible. That paints Imagination as an unfortunate victim, which is valid, but let's not forget that the cliff in question only existed for Imagination because of the iPhone.

The price at which Imagination Technologies traded before yesterday was the "with iPhone" value. Apple sold more than 78 million iPhones in just the last three months of 2016, making for incredibly brisk business for any and all suppliers that it hires. Imagination was no exception, and despite having a diverse intellectual property portfolio that it licenses out to hardware manufacturers, it was the PowerVR GPUs going into iPhones (and iPads, iPods, and Apple TVs) that had grown into its biggest earners. Nothing about Imagination has changed, except for the fact it's now being valued at its future "without iPhone" size and revenues.

The iPhone built Imagination's stock price up, and it's bringing it back down now. That experience might be familiar to iOS app developers who've enjoyed great success thanks to the iPhone, only to be suddenly upended by Apple integrating their app into its own software. Apple giveth, and Apple taketh away.

Only I'm not even sure Apple is in full control of its juggernaut anymore. In that same 78-million-unit quarter of last year, 69 percent of Apple's revenues came from the iPhone. We've seen that dependence express itself in the way Apple has deprioritized the desktop macOS to make more room for the development of its mobile iOS. And also in the way Apple is cooperating with its most direct rival, Samsung, on internal components that only the big Korean chaebol can supply. The iPhone is Apple's most successful product ever, and the company would be failing its own investors if it didn't exploit every potential avenue for securing its future.

Beside Apple and Imagination, there's also the example of GT Advanced Technologies, a specialist manufacturer that got hired in 2013 to provide sapphire glass displays for the iPhone. GT and Apple collaborated on outfitting whole new manufacturing facilities in the US, but the project eventually hit a few too many issues and was scrapped. Apple weathered the setback, but GT was wiped out and had to file for bankruptcy. It was a big and risky bet for a small company, though if it had panned out as planned, GT wouldn't have stayed all that small for much longer.

In the third-party accessories arena, there are companies like Twelve South, which builds peripherals and cases only for Apple products, and Mophie, whose entire business plan seems to be to dominate the market for iPhone battery cases.

It's more than a little surreal to witness the far-reaching influence of an outwardly simple slab of technology. Because the iPhone sells in huge numbers and with a substantial profit margin, Apple is free to dictate its own terms to any manufacturer it wants to engage. Just look at the length of the line forming to supply its next generation of iPhone displays.

As to Imagination specifically, there's added intrigue stemming from yesterday's drastic stock market reaction. Apple had previously discussed buying Imagination Technologies, but decided against it, perhaps because the price was too high. Building a GPU from scratch is very hard, and Apple would obviously prefer to just own the technology, intellectual property, and engineers that it already relies on. That scenario is today much more affordable, simply because Apple said that it will move its vast iPhone business elsewhere. I don't know how fair or ethical this self-fulfilling prophecy is, but it's certainly illustrative of the transformative power of the iPhone.

The article was published on : theverge