Apple Tangled in Complicated Supplier Relationships

by Adam Benjamin | July 30, 2013 1:03 pm

Back in November, InvestorPlace contributor Brad Moon asked whether Apple’s suppliers were its biggest risk[1].

Apple (AAPL[2]) stock was on its way down from its $700 high back then, and now, more than half a year later, it’s down another 23%. Obviously there were quite a few factors involved in that decline, but the issues that we raised in November are as present as ever. Apple remains in complicated relationships with some suppliers, while others battle each other for smartphone dominance.

Here’s a quick roundup of what’s going on with some of Apple’s biggest suppliers.

Samsung (SSNLF[3]), one of Apple’s biggest suppliers, is also one of its biggest competitors in the smartphone space. Tensions continue to grow between the two companies, amid a constant stream of litigation — and are possibly higher than ever, following Samsung’s recent ITC import ban[4]. But Samsung has been struggling on the smartphones front, as sales continue to disappoint, leading to a Q2 earnings miss, and a slew of analyst downgrades[5]. Samsung’s variety of business lines might help shield the company from its smartphone troubles … but not a whole lot[6]. The stock has dropped 11% YTD.

Apple’s other main screen supplier is LG Displays (LPL[7]). The company went under fire after users started reporting problems with their MacBook Pro Retina Displays — many of which were manufactured by LG. The company recently announced that it would be seeking out more partners[8] in the smartphone space in an attempt to boost revenues. The company missed revenue estimates[9] in Q2, as revenues declined year-over-year. Earnings improved year-over-year but still failed to meet analyst expectations. The stock is down 13% YTD.

Intel (INTC[10]) provides Apple with a variety of chips and processors for the company’s smartphones and laptops. Back in May, Intel signed a deal[11] with Apple competitor (and supplier) Samsung to supply parts for its Galaxy Tab 3, continuing a long tradition of being stuck between[12] the two smartphone giants. The company’s sales have been dropping for four consecutive quarters, and year-over-year profits have dropped for the past three quarters. Despite the stock being up 12% YTD, the company’s CFO said Intel is counting on success in the mobile space[13] as PC sales continue to decline.

Chip-maker ARM Holdings (ARMH[14]) is another major supplier, providing technology for Apple’s smartphones and tablets. The company faces fierce competition from Intel — for placement in both Apple and Samsung devices, which together control a dominant market share of the mobile device market. Sales jumped 24% in the past quarter, leading the company to beat expectations[15] for revenue and EPS in Q2. Both were up compared to the year-ago period, suggesting that the company is moving in the right direction. ARMH is up 5% YTD.

The Apple ecosystem is vast, and the ways that the market affects these companies — not to mention how they affect each other — are nearly impossible to delineate. The biggest question looming on the horizon is whether smartphone saturation will take a toll on these companies.

That’s hard to predict right now, but the next iPhone release should give us a major clue.

Adam Benjamin is an Assistant Editor of InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2013/07/apple-tangled-in-complicated-supplier-relationships/

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