Editor’s note: Apple hit a market cap of $1 trillion on August 2. How’d they do that? While everybody else in the electronics industry is talking about this extraordinary milestone, Apple is staying mum when it comes to those who supply chips and components to Apple.
As part of our Special Project on ‘Apple’s $1 Trillion Climb’ scheduled to go live next week, AspenCore Media’s editorial team is augmenting the supply chain analysis, below, with a list of Apple’s technology suppliers in recent years. Editors discuss each vendor’s relationship with Apple – the good, the bad and the unintended – and the shape of things to come.
Component makers’ relationship with Apple Inc. – which reached $1 trillion in market cap in early August – is, in short, complicated. Winning a socket in any Apple design automatically bestows bragging rights and the possibility of a longtime, lucrative relationship on suppliers. Yet the businesses that support Apple’s endeavors are oddly silent about their marquee customer.
“We prefer not to discuss our relationships with customers,” said three suppliers contacted for this article. “We [designed a component] for Apple but we aren’t able to talk about it,” said another. A half-dozen other inquiries were not answered at all.
Strategy designed exclusively to benefit Apple
Apple’s paranoia about protecting its hardware designs is legendary; a vow of silence is only one rule governing Apple’s supply chain. Suppliers are required to continually reduce costs; provide information normally not disclosed to customers; and prepare to be designed-out of an iProduct without any prior notice. Apple has the power to make or break a supplier.
- Audience Inc., a mobile audio processor maker, saw its stock plummet from a high of $22 a share to about $8.50 a share when its parts were left out of the iPhone 5 in 2012.
- Skyhook Wireless, a location-tracking software developer, secured a contract with Apple in 2007 that would make its software part of the iPhone for the next several-plus years. Apple eventually developed its own location-tracking software, but Skyhook “never regretted” its role in Apple’s supply chain.
Although Apple’s supply chain strategy has been lauded for years, it’s designed exclusively to benefit Apple. For Apple and its shareholders, it’s an unmitigated success. For suppliers, it means responding to demands that are unique to Apple.
Display manufacturers have been on the Apple rollercoaster for years. In 2011, Apple was expected to invest $1 billion in a Sharp LCD factory to ensure adequate production of screens for its iPhone and iPad. After stumbling financially for years, Sharp was acquired by Apple’s largest manufacturing partner Foxconn in 2016. Leading display manufacturers Samsung and LG Display have fallen in and out of Apple’s favor over the years (they’re now back in.)
Apple’s microLED ambition
By 2017, it became clear that Apple was designing and developing its own display technology based on microLED.
MicroLEDs are self-emitting displays that use small, individual LED chips. The deal that initially alerted Apple’s display ambition was Apple’s 2014 acquisition of startup Luxvue, a developer of low-power, microLED-based displays for consumer electronics applications.
Apple isn’t alone interested in microLED. “Foxconn, too, revealed its interest in microLED,” according to EETimes. “Teaming with its display subsidiary Sharp, Foxconn acquired a 31.82 percent stake in eLux, a Delaware-based startup engaged in R&D of micro-LED technology focused on virtual reality and augmented reality devices.”
It’s important to note, however, that a leading technology and market research firm like Yole Développement does not see the new microLED technology will completely displace OLED and LCD. Rather, it would be used in niche applications such as smart watches, augmented reality, mixed reality and heads-up display.
Thus far, Apple has amassed an impressive portfolio of micoLED patents and there is speculation that it is using a Silicon Valley fab it bought from Maxim in 2015 to develop the technology. The fab is reportedly used for test runs, according to Yole. Apple, through its subsidiary Luxvue, appears to be developing a specific MEMS-based technology to transfer tiny LED chips and place them onto backplanes of microLEDs.
Apple vs Samsung
Separately, Apple sued partner Samsung for infringing on its patents. Apple and Samsung settled a seven-year-long patent fight over copying the iPhone earlier this year.
The case revolved around a number of design and utility patents for basic functions of a smartphone. The legal fight illustrated Apple’s strong commitment over “the value of design,” its willingness to fight until it wins against any company — whether its opponent is Apple’s competitor or a device supplier.
The jury decided that Samsung copied Apple in the early days of smartphones. While Samsung filed an appeal early June, the two companies eventually ended the litigation by reaching an agreement by late June.
Despite Apple’s now-legendary success, some industry-watchers believe Apple’s supply chain model is unsustainable. Granted, many suppliers took a calculated risk when Apple became their biggest customer. But the New York Times recently described how Apple has been “financed on the backs of its suppliers”:
[Apple’s] retail stores collect cash from customers quickly, it is ruthless on keeping inventory low, and it takes forever to pay suppliers. In the process, Apple’s operations are extremely effective cash generators. This is no coincidence. It is the result of the canny supply chain that Tim Cook built. In effect, Apple has largely been financed on the backs of its suppliers, who are willing to hold their inventory and wait more than 100 days to get paid, just for the pleasure of doing business with Apple.
To achieve this “asset-light” strategy, the Times continued, businesses must create a supply chain in Asia “run by companies willing to invest in low-return projects that create your products. Second, hold those suppliers under your thumb.”
Hardware suppliers: unsung heroes
Apple has proven that, in the supply chain, you can demand anything if you have enough clout. Apple’s hardware partners are the unsung heroes of Apple’s exponential climb to $1 trillion. Apple’s app developers are celebrated with an annual awards ceremony; there’s no such parallel for component makers.
“Apple will definitely deliver volume and revenues, and for the most part they are not looking to squeeze suppliers so hard they put them out of business. But they definitely drive a very hard bargain, demand unnatural acts that companies would never do for anyone else,” said Peter Burrows, an author and journalist who has covered Apple since the mid-1990s.
But many of Apple’s supply chain lessons are evident only after the fact, and suppliers’ silence on Apple speaks volumes. “The first rule of Fight Club is: you do not talk about Fight Club,” according to a popular film meme. “The second rule of Fight Club is: you DO NOT talk about Fight Club! Third rule of Fight Club: if someone yells “stop!”, goes limp, or taps out, the fight is over.”