Apple’s recent decline in iPhone sales is bad news for more than just shareholders. A report in the WSJ details the losses being suffered by some of Apple’s biggest component suppliers. While that’s bad news for the manufacturers, it could lead to even worse problems for Apple down the line.
The report makes for dire reading, if you’re an Asian manufacturing magnate: Foxconn, Apple’s long-term assembler, saw its first-quarter profits down 9.2%; Sharp, the screen manufacturer recently bought up by Foxconn, fell into an operating loss, as did the Sony division that makes camera modules. It’s not just Apple — profits for smartphone assemblers and component manufacturers took a dive across the board. But bad times for Apple’s iPhone manufacturers could have serious knock-on problems for iPhone production down the line.
Apple has always had a bigger, better status among manufacturers than other smartphone makers. Its purchasing power has enabled Apple to drive harder bargains, meaning more consistent supply, and better profit margins. Even with those advantages, Apple has seen supply problems in the past, resulting in out-of-stock iPhones, or forcing the company to use slower processors in some handsets.
But if financial difficulties continue for Apple’s suppliers, it could be in much bigger trouble. Even with falling iPhone sales, the company still has to produce tens of millions of iPhones every year, and that’s hard to do if the factories you rely on are going into bankruptcy.
The manufacturers are trying to address the problem by diversifying. After the PC market slowed down in the mid 2000s, laptop manufacturers turned to the growing smartphone business for orders. In 2016, it’s clear that the smartphone craze is finally cooling off; what’s less certain is what the Next Big Thing will look like.