Since Apple’s latest press conference, who hasn’t been talking about the iPhone 6? It is easy to say that Apple products are incredibly popular in the U.S., and it is no secret that Apple has been trying to break into other markets abroad, especially Asia. However, few seem to realize the importance Apple has in countries in Asia, not because of their products, but because of the materials that make up their products. In “There’s a Downside to Making Parts for Apple,” Adam Satariano and Peter Burrows give readers a glimpse into the cutthroat negotiations Apple goes through with these companies, and how dependent they are on Apple products. Some companies simply exist because of Apple’s products. For example, 79.6% of Dialog Semiconductor’s, who makes chips within phones, revenue comes from Apple’s revenues. As scary as that sounds, the revenue from Apple is huge; their 79.6% revenue translates into almost $180 million. This seems like a lot of money and the benefits are obviously huge, but the suppliers worry that if Apple switches to a different supplier, as they did with Audience, who makes “mobile audio processors,” they will lose a ton of revenue. In Audience’s case, they not only lost 82% of their revenue from Apple products when Apple decided to use a different company to supply those audio processors, but their shares dropped from $22 to $6. Audience did find a new buyer in Samsung; however, their stocks never reached their heyday of $22 like they did with Apple. TPK Holding, which supplied Apple with the touch controls for the first iPhone, even held an IPO in 2010 because they felt so comfortable and reliable on Apple’s business. However, two years later, Apple decided to change its iPhone design, and began buying the same screens and controls from a rival. TPK Holding’s income fell by 50% in the last year, and its shares fell 73%. All of these companies lost majorly because they thought they could keep Apple around, but they could not.
The suppliers of Apple products are in a dangerous game. Their rises and declines come and go “in large chunks.” Companies often taste the sweet victory of signing a supplier contract with Apple almost immediately. For example, the revenues the companies involved in the iPhone 6 will receive will be huge, especially with a record setting opening weekend. However, there is a scary reality that a lot of these companies, in a few years, could lose Apple’s business, and depending on how reliant they are on Apple, it could be catastrophic.
How do you feel about Apple’s negotiating tactics? Do you think it is smart for these suppliers to go into business with Apple, knowing they could lose a ton of business in the next few years? What do you think the suppliers could do in order to prevent losing Apple as a client?
5 thoughts on “The Hunger Games: Apple Edition”
I found your post to be very interesting. I think apple’s way of negotiating is very smart, even though I don’t exactly agree with them. I think suppliers should go into business with them, but they need to be a bit more aware of what can happen in the future. I don’t think they should rely so much on Apple because as the post say they can be dump any time. Apple has a huge market share in the electronics or computers world and business should take advantage of being chosen to do business with Apple and get the most money they can from them and invested well so they don’t end up like the others companies that relied fully on Apple.
This was a really interesting post. Ultimately, I think these companies, at this point, understand the risks they face when going into business with Apple. However, while they are doing business with Apple they are making a tremendous amount of money. Part of being in business is keeping up with the markets. If your competitors create a better or more marketable product you are going to lose business to them. In a sense it is a ‘survival of the fittest’ attitude, which keeps technology advancing and not staying stagnant. Overall, the benefits of doing business with Apple far out weigh the potential lose of them in a few year.
From a business standpoint, Apple just simply does what every business would do. For supplier, I think it’s still a good idea to do business with Apple. The reason they would potentially lose a large part of their revenue is because they put all their resources on just one client – Apple. In my opinion, suppliers just need to understand that if Apple leaves them is because there is a better deal out there. To prevent such thing to happen, I think the supplier should keep up with Apple’s expectation, or divide the resources they have and attract more clients instead on relying solely on Apple. Like the above comment, the benefits are out weight the lose while doing business with Apple, one of the things the supplier can consider is how they spend/use/invest the revenues generated from Apple’s products.
This is a very interesting post. I think Apple is doing a wonderful job with their negotiating tactics. Even though it may seem unfair for the businesses that are negatively impacted by Apple’s decision to change to a rival company, they should be aware of all the risks and not be so dependent on one company. These suppliers should decrease their dependency on Apple, but focus on ways they could become better in order to increase revenue. These companies should be more innovative, and find a way to attract other buyers and go outside the scope of only Apple.
I personally feel like Apple is doing a great job with their negotiating tactics. Apple is incredibly shrewd, and their decisions are very business savvy. Apple tends to gravitate towards suppliers that have either the newest technology, a refined technology, or a cheap/relatively low buying price.
Suppliers would be foolish not to go into business with Apple. We’ve seen examples of past companies that have done business with Apple, and their businesses have soared. Suppliers might as well benefit from the business they do with Apple. However Apple shows no loyalty towards their suppliers, so in return, the suppliers should not hold any loyalty towards Apple. Suppliers, rather than being dependent on one sole customer, should branch outwards and serve several technology customers. They do not have to supply the same product/technology, but they can still do a bang up business and be independent of Apple. In order to keep Apple as a client, these suppliers need to stay on their toes with their product, and keep their client happy.