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Apple Reduces Its Dependence on Chip Suppliers

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Apple’s relationship with its chip suppliers

Apple (AAPL) is a big name in the semiconductor industry. Apple is a major customer for many chip companies. As the smartphone market matures, the pressure is building on handset makers and chip suppliers.

Apple has been diversifying its supplier base to reduce its dependence on a single supplier. In 2016, Apple chose Intel (INTC) as its second modem chip supplier, which reduced its dependence on Qualcomm’s (QCOM) modems. Apple has also been expanding its in-house chip designing.

Apple has been putting pressure on its suppliers. Apple is encouraging suppliers to reduce their dependence on the company by diversifying their customer bases.

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Apple reduces dependence on Dialog

The latest supplier hit by Apple’s act is United Kingdom-based Dialog Semiconductor—the sole supplier of PMICs (power management integrated circuit) for iPhones. Dialog stated that Apple will reduce its order 30% this year and source PMICs for one of its iPhone models from another supplier. Media reports state that Apple might substitute Dialog’s PMICs with its own in-house PMICs.

After the news, Dialog stock fell ~16% on May 31. The news also impacted other Apple other suppliers. STMicroelectronics (STM) fell ~0.4%, Qorvo (QRVO) fell 0.8%, and Cirrus Logic (CRUS) fell 1.8%.

Impact on Dialog

A 30% reduction in the order from Apple would reduce Dialog’s annual revenues 5% in 2018 and 2019. Analysts think that Dialog earns ~75% of its revenues from Apple. However, Dialog stated that despite Apple’s reduced orders, its revenues would rise on a year-over-year basis.

An in-house PMIC might put competitive pressure on Dialog to improve its quality or reduce its price.

Dialog is looking to diversify its customer base to include Internet-of-Things device manufactures.

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