Apple 2.0

Covering the business that Steve Jobs built

How Apple became the No. 1 consumer of memory chips

June 8, 2011: 11:21 AM ET

It went from No. 6 in 2008 and No. 3 in 2009 as its appetite grew nearly 80% a single year

Click to enlarge. Source: IHS iSuppli

A report issued Wednesday by IHS iSuppli confirmed what most experts already assumed was true: Apple (AAPL) has overtaken Hewlett-Packard (HPQ) and Samsung to become the world's largest consumer of semiconductors among so-called original equipment manufacturers (OEMs).

According to analyst Wenlie Ye, Apple's appetite for memory chips grew 79.6% in 2010 and is still growing.

iSuppli's explanation for how this came to be reads like a page out of Steve Jobs' playbook: (I quote)

Although Apple and Hewlett-Packard have been rivals in the computer space for many years, an examination of their respective semiconductor expenditures shows that the two companies are fundamentally different.

Apple is more a wireless devices maker than a computer maker. The company spent approximately 61 percent of its semiconductor budget in 2010 on wireless products such as iPhones and iPads. In contrast, 82 percent of Hewlett-Packard's 2010 semiconductor spending was dedicated to computer products like desktops, notebooks and servers.

This worked to Apple's benefit, with the smart phone and tablet markets massively outgrowing the computer segment in 2010. Smart phone shipments in 2010 rose 62 percent, while  tablets exploded by more than 900 percent, driven by the introduction of Apple's iPad.

In contrast, global PC shipments grew a relatively weak 14.2 percent in 2010.

Apple strength in hardware sales lies in its device and media ecosystem—every Apple product is connected through iTunes/iOS and is synergetic with all other Apple products. As a result, committed users of the Apple ecosystem derive more value from each additional Apple device they buy, and users have little interest in leaving the Apple realm.

In other words, through a common ecosystem, Apple leverages each device to sell other devices. Rising device sales to consumers then leads to increased semiconductor purchasing by Apple.

In comparison, the traditional PC business does not put heavy emphasis on the creation of an ecosystem. A buyer that once purchased a Hewlett-Packard PC would just as likely purchase a Dell PC next if the price was better, given that there is little or no value in purchasing another Hewlett-Packard.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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