Apple’s double-edged supplier sword needs blunting
Having in-house technology and control over procurement are often two conflicting things, especially when iPhone maker Apple is near the leading edge
Taipei: Terrible news hit Imagination Technologies Group Plc and its shareholders Monday as the British chip designer learned it won’t be able to rely on the Apple gravy train for much longer.
That supplier risk cuts both ways. According to Nikkei, the iPhone maker has ordered 70 million organic light-emitting diode panels from Samsung Electronics Co. That’s not quite so revelatory, with Bloomberg’s Mark Gurman and Jungah Lee reporting back in November that Apple Wants OLED in iPhones, But Most Suppliers Aren’t Ready.
If you can find it in your heart to feel sorry for Apple for just a moment, you’ll appreciate its dilemma. The world’s two biggest smartphone makers duke it out in the market and in court, only for one to have to turn around to the other and sign a big fat check for a product it can’t get anywhere else.
Apple doesn’t like to share technologies. It uses fancy terms like retina display and force touch to convince customers that mundane features, like high-resolution screens, are actually special to them. That’s probably one reason why Apple is set to dump Imagination, because Imagination’s graphics-chip products can be found elsewhere and Apple wants to go it alone.
As Gadfly’s Leila Abboud pointed out, relying on one customer is a risk Imagination should have better managed.
Yet, if there’s one thing Apple hates more than not having full control over its public image, it’s not having full control over its supply chain.
Unfortunately, having in-house technology and control over procurement are often two conflicting things, especially when you’re near the leading edge (note, I didn’t say at, because Apple is often not the first to a technology). That’s because only a handful of companies will have the ability to make the product at the unique specifications and quantities Apple needs.
Open technologies, on the other hand, generally have a much longer list of suppliers that are able to make as many units as Apple requires. Or that any of its competitors require.
In cases where an outside firm has developed a unique technology that Apple wants to use, it will typically cajole that supplier into a licensing deal that lets Cupertino share the know-how with other manufacturers. According to my sources, suppliers have actually turned down such deals and lost the order as a result.
Which brings us back to Samsung. Clearly Apple has little leverage to dictate terms when the South Korean behemoth has so much of the technology and capacity to provide the shiny new toy that U.S. consumers crave.
Apple could forego OLEDs in this iPhone cycle, and indeed has considered doing so, in favour of more mature technologies. But that would put it far behind the curve on display at a time when customers, investors and pride all demand something grand from the 10th anniversary iPhone.
That’s why Apple is hard at work in Taiwan, California and elsewhere developing its own display technology. Because the sooner it can stop the words “Apple”, “supply” and “Samsung” appearing in the same sentence, the better. Bloomberg