U.S. News

Techies Rush to Dissect Apple's iPhone

Sharon Lorimer

While most iPhone owners couldn't wait to try out their pricey new gadgets, a few raced to break them apart.

The dismantled -- and in some cases, permanently busted -- iPhones revealed one of Apple's closely guarded secrets: The names of the companies that supplied the chips and other electronic components for the highly anticipated device.

The findings sent all but a few of the component makers' stocks higher Monday, the first day of trading since the iPhone -- a combination cell phone, music player and wireless Web browsing device -- went on sale in the U.S. Friday evening for as much as $600 a pop.

The parts makers stand to profit handsomely if the iPhone proves popular over time. Apple itself has set a target of selling 10 million units worldwide by 2008, gaining roughly a 1% share of the cell phone market.

The phone was sold out in most Apple and AT&T stores by Monday afternoon, said AT&T spokesman Michael Coe. He declined to release specific sales figures.

Coe added that most of the activation problems that surfaced over the weekend had been resolved. Some iPhone buyers had trouble switching over to AT&T from their previous wireless carrier, delays that AT&T blamed on overloaded servers, a problem with the company's credit authorization system, and problems transferring customers' business accounts to consumer accounts.

"The issue is essentially behind us now," he said.

But as that problem passed, another glitch emerged. Some iPhone users in Western and Midwestern states were unable to get onto the Internet for several hours Monday because of outages on AT&T's EDGE network that were eventually fixed, Coe said. AT&T said it had not determined what caused the outages but was certain it wasn't due to an influx of iPhone users.

Despite the problems, investors flocked to the iPhone's newly unmasked parts makers.

Among the beneficiaries of Apple's business and the tear-down buzz were semiconductor heavyweights Intel , Broadcom , Texas Instruments and Infineon Technologies as well as lesser-known companies such as Skyworks Solutions and Linear Technology .

Apple's Secrecy Regarding Suppliers

Some researchers said Apple's secrecy surrounding the iPhone's component suppliers is yet another example of the Cupertino-based company's vaunted ability to keep their partners tightlipped even when facing a media frenzy and rampant speculation.

"They're very good at it -- and I think they make a point of holding their suppliers to a standard of secrecy, or you could lose the next round if you slip up," said Howard Curtis, vice president of global services for Portelligent, a research company.

The secrecy continued Monday. Most of the component makers either didn't return phone calls or declined to comment.

Much like the examinations of other much-hyped gadgets, the deconstruction of the iPhone was a mad dash to be the first to post online, with minute-by-minute updates on Web sites and the occasional howls of researchers who wound up destroying their iPhones.

Those that released detailed descriptions of the iPhone's innards included sites such as ThinkSecret.com and iFixit.com as well as research companies Portelligent and Semiconductor Insights. Several analysts also published the results of their own tear-downs.

Based on the results, one of the biggest winners is South Korean chip maker SamsungElectronics, which is making the main microprocessor used to run the phone's operating system and various applications. Samsung, the world's largest memory chip manufacturer, is also making a type of memory called NAND flash for the iPhone.

Santa Clara-based Intel, the world's largest semiconductor company, is supplying another form of memory, called NOR flash, according to various research firms.

Intel is in the process of unloading its troubled unit that makes the memory, which is primarily used in cell phones, amid fears about its long-term viability with the rise of NAND flash, a cheaper alternative that's commonly found in digital cameras and music players.

Stocks Benefit on iPhone's Release

Intel's stock rose 53 cents, or more than 2%, to $24.27 in Monday trading.

Other chip makers whose stock rose on their involvement with the iPhone included Irvine-based Broadcom, which is making a controller chip believed to be used for managing the touch-screen display. Broadcom's stock price rose 52 cents, or 1.8%, to $29.77.

Texas Instruments is supplying a power-management chip. Shares of TI gained 43 cents, or 1.1%, to $38.06.

German chip maker Infineon Technologies, which makes parts that handle cellular communications for the iPhone, saw its American Depositary Shares rise 50 cents, or 3%, to $17.03.

But it wasn't just the heavyweights who benefited.

Woburn, Mass.-based Skyworks Solutions was revealed as the supplier of a power amplifier used in the iPhone. Skyworks' shares jumped 26 cents, or 3.5%, to $7.61.

Shares of Milpitas-based Linear Technology rose 50 cents, or 1.4%, to $36.68 after the company was identified as the maker of the iPhone's battery charger chip.

Another company profiting from the iPhone is Cambridge Silicon Radio out of England. Researchers said the company is responsible for making chips that allow Bluetooth wireless connectivity for the iPhone.

But the iPhone halo didn't touch everyone Monday.

Apple, for one, fell 78 cents, or less than a percentage point, to $121.26.

Shaw Wu, an analyst with American Technology Research, attributed the slight drop to profit-taking after a prosperous run over the past year, during which Apple's stock price has more than doubled. On Monday his firm raised its price target for Apple to $165 per share.

Marvell Technology Group   , the Santa Clara-based provider of chips that allow the iPhone to connect over Wi-Fi networks, dropped 13 cents, or less than a percentage point, to $18.08. And Santa Clara-based National Semiconductor , which is apparently making a display chip for the iPhone, fell a penny to $28.26.