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The Life of an Apple Supplier Is Getting Even Tougher

Imagination Technologies Group Plc discovered how fickle life can be as an Apple Inc.supplier when it was ditched this month by the iPhone maker. More suppliers may suffer the same fate as the world's largest technology company faces a shrinking number of semiconductor makers and expands into areas that need special chips designed in-house.

The Life of an Apple Supplier Is Getting Even Tougher

Dialog Semiconductor Plc, Synaptics Inc. and Cirrus Logic Inc. are particularly vulnerable to Apple's supply chain whims and demands, according to analysts. One component supplier, Avnet Inc., stopped working with Apple because the relationship was squeezing its profit margins too much.

Apple has developed its own processors for years, but has stepped up in-house design of components, including graphics, Bluetooth and other smartphone-related chips, in recent years. That’s expensive, and creates new risks, but it helps the company maintain leverage over suppliers as a recent wave of acquisitions cut the number of chipmakers it works with.

To secure cheaper prices, Apple likes to have at least two suppliers for any given component. But last year alone, one in five U.S. chipmakers were acquired, according to Susquehanna Financial Group. Key Apple suppliers SanDisk Corp., Broadcom Corp., TriQuint Semiconductor Inc., Intersil Corp., Sharp Corp., Elpida Memory Inc., RF Micro Devices Inc. and Fairchild Semiconductor International have all been snapped up since 2013.

Loop Capital Markets LLC analyst Betsy Van Hees, has seen 35 chip companies swallowed since 2014. “You have less competition, less pricing pressure," she said. "Which may be why Apple is going more internally than externally." In the past, it was easier for Apple to squeeze outside suppliers to improve profit margins, she added.

This year is particularly important for Apple because it’s preparing to launch three iPhones, including a flagship device with a major new design. The installation of new manufacturing lines and processes is costly, so Apple needs to find savings elsewhere. “To avoid taking a hit you put some pressure” on the suppliers, BGC Partners analyst Colin Gillis said.

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Dialog Semiconductor Plc, Synaptics Inc. and Cirrus Logic Inc. are particularly vulnerable to Apple's supply chain whims and demands, according to analysts. One component supplier, Avnet Inc., stopped working with Apple because the relationship was squeezing its profit margins too much.

Apple has developed its own processors for years, but has stepped up in-house design of components, including graphics, Bluetooth and other smartphone-related chips, in recent years. That’s expensive, and creates new risks, but it helps the company maintain leverage over suppliers as a recent wave of acquisitions cut the number of chipmakers it works with.

To secure cheaper prices, Apple likes to have at least two suppliers for any given component. But last year alone, one in five U.S. chipmakers were acquired, according to Susquehanna Financial Group. Key Apple suppliers SanDisk Corp., Broadcom Corp., TriQuint Semiconductor Inc., Intersil Corp., Sharp Corp., Elpida Memory Inc., RF Micro Devices Inc. and Fairchild Semiconductor International have all been snapped up since 2013.

Loop Capital Markets LLC analyst Betsy Van Hees, has seen 35 chip companies swallowed since 2014. “You have less competition, less pricing pressure," she said. "Which may be why Apple is going more internally than externally." In the past, it was easier for Apple to squeeze outside suppliers to improve profit margins, she added.

This year is particularly important for Apple because it’s preparing to launch three iPhones, including a flagship device with a major new design. The installation of new manufacturing lines and processes is costly, so Apple needs to find savings elsewhere. “To avoid taking a hit you put some pressure” on the suppliers, BGC Partners analyst Colin Gillis said.

Read Full Article

The Life of an Apple Supplier Is Getting Even Tougher