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?