No company is an island; even the most integrated manufacturer or service provider relies upon a cooperative ecosystem of other companies. In the case of Apple (Nasdaq:AAPL) and its multi-billion dollar successes, the iPhone and the iPad, there is a long list of companies that are involved in the process. Consider the fact that Apple logged over $16 billion in costs of goods sold for the December quarter - an amount that on an annualized basis is larger than the GDP of Ecuador. (We look at a retailer's inventory turnaround times, its receivables as well as its collection period. See Measuring Company Efficiency.)

IN PICTURES: 7 Interview Don'ts

That is a large amount of money by any measure, and a sign of the value of being tapped as a supplier to Apple. As Apple shows no sign of slowing down anytime soon, it is worth examining who else directly benefits from Apple's successes. Here is a quick rundown of the Apple ecosystem.

Readers should note, though, that Apple's ecosystem is not static - the company sources certain components from multiple suppliers and will occasionally replace suppliers when price and performance dictate a change. Once such change has taken place relatively recently, as Linear Technology (Nasdaq:LLTC) no longer supplies the DC/DC converter or USB controller for the iPad2.

While the iPod put Apple back on the map as a viable consumer tech company, the iPhone vaulted the company to a never before seen level of success. Keep in mind, too, that while the iPhone may have the lead in U.S. smartphone sales, Apple has a long way to go to become the number one cellphone company in the United States, let alone taking on Nokia (NYSE:NOK) for global dominance. Consequently, there is likely still much more to come for the suppliers involved in this product.

Apple's own A4 processor is the heart of both the iPhone and iPad. Although the chip has the Apple logo stamped on it, Samsung (OTCBB:SSNLF) does the actual manufacturing of the chip and the architecture comes from ARM Holdings (Nasdaq:ARMH). Samsung is also the flash memory provider, though some reports suggest that Apple uses multiple vendors.

The front end GSM module comes from Skyworks (Nasdaq:SWKS), while Broadcom (Nasdaq:BRCM) is also heavily involved in the iPhone's wireless chips. Texas Instruments (NYSE:TXN) supplies the touchscreen controllers, while OmniVision (Nasdaq:OVTI) makes the camera work and STMicroelectronics (NYSE:STM) provides the accelerometer.

Of course, that is only one end of the ecosystem. Apple tapped Foxconn for the assembly of the device, while distribution takes place through wireless providers like Verizon and AT&T, as well as retailers like Best Buy. (Evaluate the past performance before investing in these types of gadget funds. Check out Technology Sector Funds.)

The iPhone is far from old news, but Apple's iPad is the next step forward in Apple's shakeup of traditional consumer electronics. As with the iPhone, the iPad is complicated collection of components supplied by a number of vendors. Perhaps not too surprisingly, Apple has tapped many of the same companies for key components of the iPhone and the iPad.

As mentioned, Apple uses the A4 chip in both the iPhone and iPad. Likewise, Samsung is a major flash memory supplier (complemented by at least Toshiba and perhaps others as well), and STMicroelectronics likewise supplies the accelerometer. Broadcom supplies a lot of the device's wireless chip needs, but also compliments Texas Instruments with microcontrollers for the touchscreen.

LG Philips handles the display for the iPad, while Intersil (Nasdaq:ISIL) and Atmel (Nasdaq:ATML) supply other components as well. As with the iPhone, Foxconn assembles the device while retailers like Best Buy handle at least some of the retail distribution.

IN PICTURES: March Madness MVPs - Where Are They Now?

Important, But Only to a Point
Is it good to be involved in Apple's supply chain? On balance, the answer would seem to be "yes." That said, simply being included in Apple's products is not an automatic make-or-break for many of these suppliers. In the case of Linear, for example, the chip company decided that it was more important to preserve its margins than Apple's revenue and the impact to the company seems to be measured in pennies per share. Likewise, it is hard to say that Texas Instruments or Samsung is desperately reliant upon Apple to make a go of it.

Consequently, while it is good to monitor those companies that are leveraged to the next "new thing", careful due diligence demands figuring out just how much leverage there really is. In many cases, particularly for the largest chip companies, involvement in a hot new product is really just a part of replacing declining legacy business and not a dramatic driver of results. (Return on research capital (RORC), can help investors measure how much profit R&D spending actually generates. See R&D Spending And Profitability: What's The Link?)

Related Articles
  1. Investing

    Procter & Gamble Restructures, Sheds 100 Brands

    All businesses face adversity, and Procter & Gamble is no exception. We take a look at recent developments affecting this global giant.
  2. Economics

    Explaining Manufacturer’s Suggested Retail Price

    The manufacturer’s suggested retail price (MSRP) is just what it describes – the price manufacturers recommend that retailers charge for their goods.
  3. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  4. Personal Finance

    What to Collect: Apple Watch vs. Luxury Watches

    The "iWatch" is a new player in the luxury watch world. But will it stand the test of time? Some points for collectors to ponder.
  5. Stock Analysis

    The Biggest Risks of Investing in Amazon Stock

    Find out which risks are most important to Amazon's shareholders. Learn which operational risks impact share prices and which financial risks affect investors.
  6. Stock Analysis

    2 Reasons PepsiCo's Snacks Division is Crucial to Its Growth

    Understand the recent trends in the North American snacks market. Learn about the top two reasons why PepsiCo's snack division is crucial to its growth.
  7. Stock Analysis

    How Does Work and Make Money?

    Learn how is taking on retail giants Amazon, Walmart and Costco by promising to save customers an average of 10 to 15% on over 10 million items.
  8. Personal Finance

    Alpaca vs. Cashmere: Which Luxe Wool Is the Best?

    Winter is coming. Which of these luxury threads is most worth the price (and how to distinguish true luxe from cheap imitations).
  9. Economics

    The 4 Countries That Produce the Most Chocolate

    Discover the four countries in the world that manufacture the largest amount of chocolate and learn basic facts about the chocolate industry.
  10. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  1. What consumer products drive most of the demand for chips produced by semiconductor ...

    Midway through the second decade of the 21st century, nearly all electronic consumer products on the planet contain some ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. How can I invest in electronic retailing (e-tailing)?

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  4. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  5. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  6. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!