Apple, Inc. (AAPL) has been a true innovator and millions of customers are willing to pay a high premium for the quality, design, and features of Apple devices like the iPhone, iPad, iPod, and Apple Watch. But Apple doesn't make all of its devices on its own. It procures components from a large number of suppliers and there are service-vendors responsible for assembling those different components into the final product.
Apple's Efficient Supply Chain
Apple is one of the most valuable companies to date with over US$912 billion market cap as of June 2019. Nearly two-thirds of its revenue comes from iPhone sales. This massive size is because the tech giant operates one of the most efficient supply-chain management systems on the market right now.
In this article, we take a look at a few of Apple's top supplies and explore the benefits and drawbacks of using this business model.
This list is not exhaustive and is arranged alphabetically. The locations of suppliers listed here are limited to the facilities that supply Apple. Suppliers may also have other facilities.
Analog Devices (ADI)
NASDAQ-listed ADI is based in Norwood, MA and provides the capacitive touchscreen controllers for the iPhones and the Apple watch. The company supplies these components from facilities based in Ireland, the Philippines and the U.S. Back in March 2015, ADI stock soared after Barclays reported that Apple was considering using ADI to source its then-anticipated 3-D touch feature.
That report pushed ADI's stock price up 9.8% over the course of a day to the company's highest levels in a decade, which indicates the impact of Apple’s business on its suppliers' valuations.
Glu Mobile (GLUU)
NASDAQ-listed Glu Mobile doesn't supply Apple with hardware but is a major provider of iOS apps and mobile games. Valuewalk reports that “Glu Mobile makes 64% of revenue from Apple,” implying its major dependency on Apple.
Jabil Circuit (JBL)
Jabil’s manufacturing facilities are based in China and it is listed on the NYSE. It supplies phone casings for Apple. Jabil also makes a wide variety of electronic and manufacturing devices like computer numerical control tools and medical device miniaturization and it also provides services such as product ideation, design, development, and creation. Despite this diversified set of products and service-lines, Jabil reportedly relies on Apple for approximately 20% of its business.
Micron Technology (MU)
Micron and its subsidiary companies, like Elpida Memory, are based in multiple locations across the U.S., Taiwan, Singapore, China, and Japan. They supply various memory modules like DRAM, LPDDR3, and LPDDR2 for Apple devices. These modules are used by smartphones and electronic devices to efficiently multitask and run various applications. The recent iPhone 6 uses LPDDR3, while the company is currently testing the next version LPDDR4, which is expected to be up to 60% faster and low on power consumption.
Murata Manufacturing Ltd.
Murata is based in Kyoto, Japan, and supplies to Apple from manufacturing facilities spread across China, Japan, Vietnam, Singapore, and Indonesia. Apple and Samsung are Murata’s top two clients, procuring ceramic capacitors from the company. These electronic parts are used to control the flow of electricity in electronic devices and according to Reuters, they constitute 40% of Murata’s overall sales towards smartphones and other electronic devices.
The much anticipated Apple Watch comes with a special device called a taptic engine, which produces a sensation of being tapped on the wrist. Japan-based Nidec has emerged as the key supplier of this technology. Nidec was established in 1973 and is a global market leader in smartphone vibration motors.
NASDAQ-listed Qualcomm is the world leader in semiconductor, mobile and telecom products and services. It is known to supply multiple electronic components to Apple, including Envelope Power Tracker, Baseband Processor, Power Management module and GSM/CDMA Receiver and Transceiver.
These are various instruments used in the devices' power management systems and in mobile signaling. However, the most important component that is missing from Apple’s own A-chip processor is the cellular baseband modem. Qualcomm has filled this important space for Apple devices, offering the needed modem technology.
With three different subsidiaries – Samsung Electro-Mechanics Co. Ltd., Samsung Electronics Co. Ltd., and Samsung SDI. Co. Ltd. – which are located in four different countries (South Korea, China, the U.S., and the Philippines), Samsung is one of Apple's major suppliers. It supplies multiple components, including flash memory, which is used for storing data content; the mobile DRAM, used for multi-tasking various applications in devices and the application processors which are responsible for controlling and keeping the whole device running.
STM is a Geneva, Switzerland-based electronics and semiconductor multinational company. It supplies a low-powered, three-axis gyroscope and accelerometer to Apple, used to detect the orientation and altitude of a mobile device. Along with Apple, STM’s top clients include BlackBerry, Nokia, and Cisco. However, recent reports suggest that all may not be well between STM and Apple.
Apple has been sued by a patent troll for allegedly infringing seven STM patents after Apple decided to go with STM’s competitor InvenSense to procure gyroscope and accelerometer parts for the iPhone 6.
Texas Instruments (TXN)
TI serves Apple through its multiple facilities spread across Taiwan, the U.S., Malaysia, Japan, Mexico, the Philippines, the United Kingdom, Germany, and China. In the Apple Watch, TI is expected to provide the current operational amplification system, which in turn, contains 30 different components itself. For iPhones and iPads, it supplies the touchscreen controller, power management chip, and a control device. According to past reports, TI was “said to receive a significant number of orders from Apple,” which generated "thousands of jobs" for this supplier.
How Does Apple Benefit?
Apple is known to maintain one of the best-managed supply-chains in the world. Using its stature and global reach, the tech giant is able to demand high-quality products and impose stricter terms on its suppliers. When one of Apple's Chinese suppliers of "tactic engines" for the iPhone 7 proved unreliable, for example, the company quickly procured them from the Japanese firm Nidec Corp.
Apple has hundreds of such suppliers willing to abide by the terms Apple sets forth. What's more, by outsourcing its supply-chain and assembly operations, Apple can do what it does best — concentrate on designing great products that offer rich functionality and are easy-to-use.
How Do Suppliers Benefit?
Being associated with a brand like Apple can be a remarkable boon for a supplier firm. Apart from the small novice firms, who may derive much of their business from Apple, even larger companies like Samsung use the relationship to their advantage. As we noted above, Samsung continues to compete with Apple in the mobile phone market, however, large orders from Apple allow Samsung to increase bulk production which reduces manufacturing costs for its own mobile phone components.
Another advantage for suppliers is that Apple has a reputation for innovation. Regardless of how specific products have performed and despite missteps that have occurred, people expect Apple to come out with something new on a regular basis and eagerly anticipate these products. To a certain extent, this shields Apple suppliers, who will continue to see new demands for their goods and services.
It should be noted, however, that failing to please Apple can spell doomsday for a small or medium-sized supplier that has built its business around iPhone sales. If suppliers do not maintain high-quality goods at the right price, Apple is likely to dispose of them for a competitor.
The Bottom Line
Apple needs suppliers and suppliers need Apple – it's a streamlined relationship that is often mutually beneficial but not without tension. Suppliers have major exposure to Apple and its overall market performance. Financial reports of supplier companies are frequently used by market analysts to project sales for Apple products. For a supplier, this can quite literally be a "do-or-die" moment. Do it well, and you just might experience windfall gains. But fail Apple, and you should be prepared for the worst.