Apple for years has left competitors scrambling for parts — while locking up its own healthy supply.
Why it matters: Apple has used a range of tactics, from investing in suppliers to pre-paying for components.
Apple for years has left competitors scrambling for parts — while locking up its own healthy supply.
Why it matters: Apple has used a range of tactics, from investing in suppliers to pre-paying for components.
How it works: This practice dates back 20+ years to the original iPod. Tim Cook, then an operations executive recently hired from Compaq, helped the company corner the market on a new, smaller hard drive from Toshiba.
- The hard drive allowed the iPod to be the size of a deck of cards.
- When the iPod became a hit, Apple had nearly the entire market cornered, forcing rivals to try to compete using far larger hard drives designed for notebook computers.
- As the iPod shifted to using flash memory rather than a hard drive, Apple ensured that it had the lion’s share of the type of memory needed for the iPod, allowing its sales to take off and again leaving competitors short of the components needed.
- Apple didn’t respond to a request for comment.
Between the lines: Apple has used a range of tactics to line up capacity, from investing in suppliers to pre-paying for components.
- Apple hasn’t used its massive cash hoard to make huge acquisitions. But it has deployed that pile of money to give it leverage in other ways.
- These days, it also benefits from its mammoth scale. It is often its suppliers’ biggest customer, meaning that when it comes time to decide who gets more of a scarce product, Apple is usually first in line.
- “When you are a supplier, knowing you will get guaranteed scale is essential and one of the main reasons Apple gets priority both in contract locks and pricing,” Creative Strategies analyst Ben Bajarin told Axios.
- “I think you would be hard-pressed to find a supplier that does not prioritize Apple in some way when it comes to contract orders.”
The bottom line: Apple has been able to both head off rivals and fare better than most in times of more general crunches.
- During the recent crisis, for example, the iPhone has been in relatively steady supply, with Apple shifting components away from the less critical iPad, which has seen some supply constraints.
