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They came up with the idea for what the product should be, designed the product and a. purchased off the shelf components where they could and b. contracted with other companies to manufacture custom components for them, and designed all the software that makes the iPhone an iPhone and not just a better looking Zune.
 
Next, with PA Semi under their belt, they will not only design that logical board, but they will be able to select individual chips, which companies normally can't do and must buy in the form of a SoC (system on a chip) such as the TI OMAP series.

Oh, I dunno. Many old time phone makers have this capability.

Samsung designs many of their own chips and even supplies the iPhone. Motorola designs their own. Nokia had an IC department which they've folded into STM Electronics to continue making custom chips. Most others are big enough to at least pay to have custom chips made.

I'm not sure why Apple bought PA Semi. Some think it's to make a custom processor in order to prevent Mac clones. Weird. Others think it's just for the talent pool. Who knows.
 
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