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VERTICAL INTEGRATION

There’s a reckoning among companies that built themselves up around Apple

Quartz/Dave Gershgorn
A high cost.
  • Mike Murphy
By Mike Murphy

Technology editor

This article is more than 2 years old.

Being a supplier for Apple might feel like finding a goose that lays golden eggs for many companies. Over the last decade, Apple has sold over 1 billion iPhones, and millions more iPads, laptops, and smartwatches. Any component supplier, or company Apple has hired to manufacture its gadgets, will likely have ridden Apple’s wave of popularity to revenue heights they had never seen before. But recent reports are suggesting that Apple is looking to develop more of the hardware that goes into its devices itself. For companies that rely heavily on Apple for business, there may be dark days ahead.

Dialog Semiconductor, a British company that supplies Apple with power-management chips for the iPhone, saw its share price drop by over 30% today, on analyst reports that Apple is planning to develop some of that technology itself. It was the largest one-day drop in Dialog’s share price since 2000, according to TheStreet.

This follows news last week that Apple will stop using graphics chips from another British firm, Imagination Technologies, in the next two years. Imagination’s stock price plummeted over 60% on the news, down to around £1 from about £2.90.

Foxconn, the largest assembler of iPhones and other Apple products, also recently felt what happens when the company decides to take its business elsewhere. Last month, Hon Hai Precision Industry, Foxconn’s parent company, reported its first year-over-year drop in revenue in 26 years, after Apple divided up some of its assembly business among other suppliers, as well as weaker demand for the iPhone for most of 2016.

When you’re dealing with the sorts of order volume that Apple can provide and also configuring your business to meet its exacting standards, it would likely be difficult for any company to put in place a sufficient contingency plan for what to do if that business dries up. And if Apple is interested in vertically integrating more of its business—much like Tesla is producing the batteries, charging system, and storage to power its vehicles—there may be more dramatic stock-price drops like these in the near future.

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