Format Wars, Overseas Investment and Apple iPods

From the table we can calculate that Apple sold 11 times as many iPod as computers during the quarter and generated 2.3 times as much revenue as from the computer product line. We can also see that sales of portable computers were up nearly 40% in terms of units and up 34% in terms of dollars while desktop units grew only 7% while desktop revenue declined 9%.

Although other vendors have developed and many more will develop MP3 players to compete with the iPod, Apple has already captured the mind set of the American people. Retail customers ask for iPods by name not by a generic phrase. Apple also has the iTunes webstore for purchasing downloadable songs.

A significant cottage industry has spring up around the iPod phenomenon offering cases, speakers, chargers, FM transmitters and so on. If the product bears an iPod label, a licensing fee must be paid to Apple.

Steve Jobs, Apple's CEO, said "We are thrilled to report the best quarter in Apple's history. Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can't wait to see what our customers think of them."

On another front Apple had announced in June that it was switching from IBM Power microprocessor to Intel's dual core microprocessor. About six months later on January 10 Apple unveiled the new iMac featuring Mac OS X running on the new Intel Core Duo processor, delivering performance that is up to twice that of its predecessor. The iMac design now features dual-core processors, a built-in iSight video camera for video conferencing out-of-the-box, and the media experience of Front Row with the Apple Remote for a simple, intuitive and powerful way for consumers to enjoy their content from across the room. Starting at just $1,299, every new iMac comes with iLife. '06, the next generation of Apple's suite of digital lifestyle applications featuring major new versions of iPhoto, iMovie HD, iDVD, GarageBand and introducing iWeb, a new iLife application that facilitates the creation of websites with photos, blogs and Podcasts and publish them on .Mac for viewing by anyone on the Internet with just a single click. The new iMac is shipping today, and is the first of a new generation of Macs featuring Intel processors that Apple will roll out during 2006.

The audio in a new advertisement from Apple says "Intel chips for years have been trapped inside PCs, inside little dull boxes, dutifully performing dull tasks when it could have been doing so much more. Starting today the Intel chips will be set free and get to live inside a MAC. Imagine the possibilities!"

Overseas Investment

Last November I did an editorial on India. There has been a considerable amount of investment activity in India and China since then, especially by Intel.

In mid June Intel announced the establishment of a US$200 million venture capital fund to invest in Chinese technology companies developing innovative hardware, software and services. Intel Capital, made its first strategic investment China in 1998 and since then has invested in close to 50 Chinese companies across nine cities in mainland China and Hong Kong.

On Dec. 5, 2005 Intel Corporation Chairman Craig Barrett unveiled a multi-year investment plan for India totaling more than US$1billion.

Barrett said "This investment demonstrates Intel's long-term commitment and builds on the foundation we have created during our 10 years operating in India. We will grow our local operations, boost venture capital investments and work closely with the government, industry and educators to increase the impact of the country's information and communications technology (ICT) industry."

Intel's US$1 billion-plus, multi-year investment roadmap includes plans to invest US$800 million over the next five years to expand business operations in India. Investments will focus on expanding the research and development center in Bangalore in addition to marketing, education and community programs.

Barrett also announced the creation of the US$250 million Intel Capital India Technology Fund to help stimulate local technology innovation and growth. The investments will focus on Indian hardware and software companies to nurture technology development for local use. The fund will also selectively invest in technology-oriented service companies that target overseas markets.

Along with Intel's investment of over US$700 million in India over the past 10 years, Intel Capital has provided funding to more than 40 companies in seven Indian cities since it started investing in 1998.

To grow its business operations in India, Intel will increase its development activities and staffing at the Intel India Development Center (IIDC) in Bangalore over the next five years. The IIDC focuses on hardware and software engineering for Intel products sold globally and has grown to 2,800 employees since it opened five years ago.

Intel is hardly alone in its investment in India and China.

One of the reasons cited for US and European firms moving design and engineering activities to India and China is the large number of engineering graduates in those countries compared with the number in the US. Is this comparison valid?

In December 2005 a study on "Framing the Engineering Outsourcing Debate: Placing the United States on a Level Playing Field with China and India" was conducted and published by graduate students of Duke University's Master of Engineering Management Program under the guidance of Dr. Gary Gereffi, and Vivek Wadhwa.

The report says that typical articles in the press have stated that in 2004 the United States graduated roughly 70,000 undergraduate engineers, while China graduated 600,000 and India 350,000.

According to the report these massive numbers of Indian and Chinese engineering graduates include not only four-year degrees, but also three-year training programs and diploma holders. These numbers have been compared against the annual production of accredited four-year engineering degrees in the United States. Additionally, these numbers include not only engineers in traditional engineering disciplines, but information technology specialists and technicians.

The Duke study makes its own estimates of the number of graduate engineers as shown in the table below.

  US India China
Bachelors Degrees 137,437 112,000 351,537
Subbaccalaureate Degrees 84,898 103,000 292,569
Total 222,325 215,000 644,106
Table Degrees in Engineering, Computer Science and IT
Source Duke University

These numbers are more favorable to the United States than the often quoted numbers. However, the US accounts for only about 20% of the total for the three countries combined.

Given the quality of education and the career opportunities available in their native land coupled with US immigration policy, it is less likely that foreign student will come to the US and if they do, it is less likely they will remain here after graduation. This deprives the US of a badly needed talent pool especially in engineering and the physical sciences.

In October the National Academies' Committee on Prospering in the Global Economy of the 21st Century presented a report to the US Congress entitled "Rising Above The Gathering Storm: Energizing and Employing America for a Brighter Economic Future". The report said that the US losing its competitive edge because of a lack of investment in education and research. It points to the fact that fewer than 1/3rd of US 4th and 8th grade students performing at a level called 'proficient' in mathematics and 12th graders performing below the international average for 21 countries in mathematics and science. While America produced 70,000 engineers in 2004, China graduated over 600,000. And India produced 350,000.

The committee made a recommendation they called " 10,000 teachers, 10 million minds " which proposes increasing America's talent pool by vastly improving K-12 science and mathematics education. The proposed program would annually recruit 10,000 of America's brightest students to the science, mathematics, and technology K-12 teaching profession. Over their careers, each of these teachers would educate 1,000 students, so that each annual cadre of teachers educated in this program would impact 10 million minds. Additional recommendations include increasing the federal investment in long term basic research by 10% a year over the next seven years.

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Review Article
  • October 09, 2008
    Reviewed by 'RichardP'
    The Format Wars was an interesting article in the recent EDAWeekly but compared to its length it didn't say too much new and did not take the conclusions far enough. The EDA angle at the end came accross as vaguely relevant but a bit too artificial. The large number of typos and grammatical mistakes was disappointing. Sometimes engineers are reputed to be not good communicators and unfortunately, sometimes it is true but anybody in the technical profession who was involved with design and worked with or written specifications can attest to the importance of correct language use in the technical field. In case of journalists, it is their bread and butter and the readers' expectations are high by definition.
    The Format Wars article had plenty of potential and strong relevance to our industry. Unfortunately, it somehow wasn't up to the high standard we accustomed to have in EDAWeekly.

      Was this review helpful to you?   (Report this review as inappropriate)

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