One of Steve Jobs’ biggest legacies was his decision to stop relying on 3rd party semiconductor companies and create an internal silicon design team.3 I would go so far as to argue it’s one of the three most important strategic decisions he ever made.
In 2007, when Steve Ballmer famously declared “There’s no chance that the iPhone is going to get any significant market share. No chance”, Jobs was off creating a chip design team. If you study unit economics of semiconductors, it doesn’t really make sense to design chips and compete with companies like Intel unless you can make it up in volume. Consider the audacity back in 2007 for Apple to believe it could pull this off. How would they ever make back the R&D to build out a team and pay for expensive silicon designs over the long run, never mind design comparative performing chips? Well today we know. Apple makes nearly 100% of the profit in the entire smartphone space.
It is – in fact – these chip making capabilities, which Jobs brought in-house shortly after the launch of the original iPhone, that have helped Apple create a massive moat between itself and an entire industry.