President Donald Trump has been pushing American companies to move more of their manufacturing to the US. Apple doesn’t manufacture iPhones in the US yet, but it wants to have a strong supplier base in the country. Apple announced Wednesday that it was investing $390 million in Finisar Corporation, which manufactures vertical-cavity surface-emitting lasers (VCSELs) for Apple.
The new Texas facility to create 500 jobs
The VCSELs made by Finisar are used in the iPhone X TrueDepth camera. These lasers power features like Face ID facial recognition, Animoji, Portrait Mode selfies on the iPhone X, and proximity sensing on the wireless AirPods. The iPhone maker made the investment through its $1 billion Advanced Manufacturing Fund, which was set up to support innovation and job creation in the United States.
Apple said Finisar would use the fund to set up a manufacturing facility in Texas that would create more than 500 jobs. The Cupertino company said 100% of the VCSELs it would purchase from Finisar would be made in Texas. Apple’s chief operating officer Jeff Williams said VCSELs support some of the most sophisticated technology Apple has ever developed. The partnership with Finisar would help Apple push the boundaries of VCSELs.
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Finisar will boost its R&D spending and scale up the production of VCSELs. There are only a few suppliers in this field. If Apple wants to use VCSELs in more of its products in the future, it will have to help the existing suppliers scale up production. In the fourth quarter of 2017, Apple will be purchasing 10x more VCSELs than the worldwide production of these lasers in Q4, 2016, points out TechCrunch.
Apple ready to source VCSELs from Finisar in large quantities
The new facility in Texas is expected to start shipping lasers in the second half of 2018. During its latest quarterly earnings call, Finisar told investors that its revenue from the VCSELs was in the “low-single-digit millions.” But it is expected to skyrocket to “tens of millions” of dollars per quarter from January 2018. Loup Ventures analyst Gene Munster estimates that Finisar’s VCSEL sales could reach $30 million once the new plant becomes operational.
Apple also sources these components from Lumentum, which is currently the largest supplier of VCSELs to the iPhone maker. Considering the huge investment in Finisar, Gene Munster believes Apple is ready to source these components from the Texas facility in large quantities. The improved VCSEL supply would not only be used in the future products, but also ease the iPhone X supply constraints.
In the run-up to the iPhone X, there were speculations that Apple was struggling with the supply of components for the TrueDepth camera system. The scarcity of VCSELs was said to be one of the reasons why Apple delayed the iPhone X release.
It is only the second time Apple has used the Advanced Manufacturing Fund. Earlier this year, the company invested $200 million from the Fund in Corning, which makes glass used in the iPhones.
Apple will need a huge and steady supply of VCSELs from next year. According to KGI Securities analyst Ming-Chi Kuo, all the iPhone models coming next year would feature the TrueDepth camera for Face ID. Apple is also working to add the same camera to the next year’s high-end iPad. Another supply chain rumor claims that the future versions of HomePod would also come with 3D sensing cameras for Face ID.
Why did Apple buy Shazam?
Apple announced the Finisar investment just a couple of days after confirming the acquisition of Shazam for $400 million. The tech giant hasn’t yet revealed its plans for the music recognition app, but it could help enhance the Apple Music experience. Interestingly, Shazam was valued at $1 billion in its last funding round, but it had been struggling to find a viable business model. It generated only $54 million in revenues last year.
Shazam allows users to identify movies, songs, TV shows, and commercials from audio clips. Apple could tightly integrate Shazam’s music and sound recognition technologies with iOS. The Cupertino company might also be interested in the UK-based firm’s augmented reality technologies that could improve its ARKit efforts.
Shazam also sends millions of customers to streaming services such as Spotify and Apple Music. Now that Apple owns Shazam, when the app successfully matches a song for a user, it could serve a link to Apple Music instead of Pandora or Spotify. It could help bring more subscribers to the Apple Music, hurting the rival services. Shazam also has a talented team that could help Apple enhance its smart speakers and Siri. Siri lags far behind Google Assistant and Amazon’s Alexa in AI capabilities.