BOE and Apple are constantly negotiating with each other.

The grudge between BOE and Apple has been ongoing from the beginning of the month until the end, despite various rumors. Neither side has come to a conclusion about this farce.
$Apple (AAPL.US)$

It is well known that Cook is a control freak when it comes to the supply chain. In his management philosophy, the supply chain is Apple's bottom line that cannot be challenged. Although the rumors have not yet settled, Apple seems to be in a more awkward position compared to BOE. Thinking back, the reason why Apple listed BOE as one of the 'Apple Supplier' army was to alleviate the centralized supply chain.

Before BOE, Apple's panel supply was firmly controlled by Samsung and LG. According to Bloomberg's report, Samsung Display and LG's panel manufacturer LG Display supplied a total of 11 million OLED panels to Apple in the past year, mainly used in the iPhone 12 and last year's fall released iPhone 13 series models. It is worth noting that Apple only purchased a total of 17 million panels in the past year.

In other words, Samsung and LG together undertook 64% of Apple's orders, a nightmare for Cook. Whether BOE has offended Apple's major customer is still unknown, but in the past two years, with the global supply market fluctuating, Apple may be the most difficult one. Apple's caution and 'devotion.'

Apple always likes to maintain a close relationship with its supply chain. For a long time, the outside world has been very curious about Apple's supply chain until 2012 when Apple first disclosed the list of suppliers, which was also an audit report on suppliers' violations, with 156 companies selected at that time.

Since 2013, Apple has published a list of the top 200 core suppliers almost every year, with these 200 companies accounting for 97%-98% of Apple's procurement, production, and assembly expenditures. Apple's strict control over the supply chain is reflected in every detail, even disallowing suppliers to actively seek connections with other powerful entities.

The most typical example occurred with Kia. In January of last year, there were rumors that Kia was going to manufacture Apple's autos. The uproar in the media did not last long, as Kia was soon reported to have leaked information causing Apple's dissatisfaction, leading to the forced termination of the collaboration. Apple does not like to appear in suppliers' public reports, this is no secret.

As early as 2014, The Wall Street Journal mentioned that a company specializing in providing screen protection films for phones, GT Advanced Technologies, inadvertently mentioned Apple in its public report and involved some details of confidentiality agreements. It was not only sued by Apple but also placed on a supply chain blacklist.

Why is Apple always so cautious about its supply chain? This doesn't seem to align with the image of an international tech giant. However, looking back at Apple's many years of history, perhaps the answer is not hard to find.

Before 2012, topics surrounding Apple in the tech industry always revolved around the supply chain. It is reported that the reason Apple keeps silent about its supply chain is that many times the same components will be used by multiple suppliers, even though they all have Apple's technical support, there are inevitably subtle differences.

In addition, Apple suppliers are usually required to produce customized components, and Apple's mobile component quality standards exceed the industry's by more than five times. It is reported that Apple only has an 80% acceptance rate for component quality. Supplier confidentiality is a way Apple indirectly protects its technological innovation over the lengthy three-year development cycle of the iPhone market.

Apple "defends" its supply chain diligently. According to industry sources, Apple often dispatches a large number of mobile engineers to component factories for joint development. Even if it's just an assembly factory, Apple has stationed nearly 2,000 engineers at Foxconn. A new report from Apple shows that the company has made several modifications to its outsourcing partners' security guidelines to help prevent information leaks.

This guideline stipulates that all videos of 'damaged display prototypes and faulty parts must be retained for at least 180 days.'

Furthermore, Apple's supply chain confidentiality principle largely stems from Steve Jobs. To this day, Apple still adheres to a Jobs-esque product release style. For Apple, surprises are a marketing tactic that gathers fans' eager anticipation. All unreleased product details have also become one of Apple's valuable assets in the consumer market. Apple has turned confidentiality into a meme, with the Apple Park gift shop selling a shirt with the words: 'I visited Apple Park, and that's all I can say.'

On the other hand, the supply chain has a huge impact on Apple. During Apple's second fiscal quarter earnings call in 2022, Cook mentioned that the impact of supply chain issues on Apple could reach 4-8 billion USD. In the authoritative Gartner Global Supply Chain Top 25 list, Apple has held the top spot for 7 consecutive years. It is easy to see that Apple's sincere dedication to the supply chain has not been in vain. Let's hope this caution continues as usual. Will the supply chain 'strike back' against Apple?

In the past decade, it has been the most glorious decade for Apple suppliers. Leaning against a big tree for shade, with giants hidden, every link on the supply chain has made a lot of profit. Data shows that since 2011, the overall annual compound revenue growth rate of the domestic Apple industry chain has been around 35%, and the net income attributable to the mother has a compound annual growth rate of up to 20%.

Domestic companies connected to Apple shine the most. Over the past decade, the number of Apple concept stocks has exceeded one hundred, with 45 of them listing on the A-share market alone, with a market cap of over 2.6 trillion. Some have become legendary in the fruit chain, such as Luxshare, with reports claiming that this company once increased its revenue by 90 times in a decade thanks to Apple.

However, the halo of the fruit chain has noticeably dimmed in recent years.

While Apple disperses the over-centralized supply chain, suppliers also realize the chill from the giants. In recent years, many fruit chain manufacturers have been diversifying. In 2021, one of Apple's suppliers, 'Lens Technology,' partnered with Huawei; likewise, BOE also collaborated with Huawei and Xiaomi.

Starting to move out of the comfortable Apple circle, many companies have excelled in the second growth curve. Take Goertek Inc., for example, this company has chosen VR and AR business and currently holds about 70% of the market for high-end head-mounted displays globally. From relying on giant support to diversified transformation, what exactly changed the once dominant situation?

Firstly, the stringent elimination rate of the fruit chain has always been a sword hanging over the entire supply chain. Public information shows that Apple's supplier selection process has an elimination rate as high as 30%, with 34 companies ruthlessly dropped by Apple in 2021 alone. Ofilm Group Co., Ltd. being removed from the fruit chain list led to a shift from profit to loss in 2020 reaching 1.85 billion yuan, and in 2021, the net income attributable to the shareholders of the listed company was -2.625 billion yuan. Its market cap plummeted from over 80 billion yuan to less than 20 billion yuan.

Apple's stringent elimination mechanism in the supply chain intensified after Cook took over. In order to double the self-discipline of the entire supply chain, Cook once reduced the number of component suppliers from 100 to 24. It is worth noting that Apple's warehouses also limit excessive inventory. In September 2018, Apple's inventory turnover rate hit a record low of 37.2 times.

Becoming part of the fruit chain army is easy, but remaining steadfast is challenging. Many companies dare not slack off, for example, BOE has maintained a continuous 7% research and development investment ratio over the last three years, with research and development expenses reaching as high as 9.441 billion yuan in 2020 alone. This has led to an awkward situation where BOE struggles to make a profit.

In the first quarter of 2022, JD.com's revenue was 50.476 billion yuan, with a net profit attributable to the mother of 4.389 billion yuan, a year-on-year decrease of 16.57% after adjustment. Since the third quarter of 2021, JD.com's net profit has been declining. Perhaps today, Apple is finding it difficult to support a worry-free company.

Luxshare is the same. In 2021, Luxshare's financial report data shows that the most important consumer electronics business accounted for 90.52% of total revenue, dropping to 83.90% in the first half of the year, with a significant slowdown in consumer electronics business revenue growth. Tasting the hidden benefits of being a giant also means enduring hardships. Apple is no longer the myth of getting rich through supply that it was ten years ago, and every link is eager to find the next "cash cow."

In the business world, there are no eternal friends, only eternal interests. Will Apple let go of "Made in China"?

There are thousands of suppliers in the supply chain, and half of them are in China.

According to the 2020 fiscal year Apple's top 200 supplier list, there are a total of 96 Chinese manufacturers, almost half of them, with the United States, Japan, and South Korea all trailing behind China. Technode data shows that Chinese factories account for about 48% of all factories in Apple's supply chain, nearly half, totaling 297.

The high proportion of Samsung and LG has made Apple uneasy, so it has turned to JD.com instead. With such a dense supply chain in China, Apple has long been considering how to break away from China. Over the years, Apple has expanded beyond manufacturing in China, including India and Vietnam.

Among them, India's supply chain development is the most rapid. On the one hand, since the Indian government launched an incentive program of up to 5.4 billion US dollars in 2020, India's mobile phone exports could increase 50 times within five years. As of March this year, the export value may exceed $5.92 billion.

On the other hand, as the world's second-largest smart phone market, India contributed about 4% of the market share to Apple last year, while Apple was also the fastest-growing brand in the Indian mobile phone market. In recent years, India's supply chain manufacturing has significantly increased. In 2020, India accounted for 1.3% of Apple's global manufacturing base, which rose to 3.1% the following year.

Although the gap with china is still far away, the growth speed of the india fruit chain is not to be underestimated. It is reported that by 2022, india is expected to increase its proportion to 5% to 7%. Undeniably, diversifying supply risks is not just for enterprises, apple's attitude towards chinese manufacturing can be described as both loving and fearing.

In addition to india, apple is also beginning to favor vietnam. Public information shows that apple has 31 original equipment manufacturing partners in 14 provinces and cities in vietnam, with approximately 0.16 million employees. Over the years, with global supply chain turbulence, apple's intention to further control the supply discourse is becoming increasingly apparent. Diversifying potential crises is one aspect, and as the costs of mobile phones and raw materials for cars continue to rise, apple must have the capital to negotiate with suppliers in order to reduce production costs.

In 2020, apple even started to use money to 'buy' hearts. For example, providing 0.2 billion dollars funding to JDI to produce OLEDs in order to compete with companies like samsung. This is not the first time apple has used money to invest in its supply chain. As early as 2015, apple had invested a total of 170 billion yen to help struggling JDI overcome difficulties by building factories.

Can the fruit chain smoothly transition from china?

One thing can be certain, the possibility of large-scale relocation of the supply chain in a short period of time is unlikely. s&p global ratings has mentioned in a report the importance of china manufacturing to apple. Having stayed in the country for many years, the cost of shifting the supply chain is naturally not small, especially since over 90% of apple products, such as iPhone, iPad, and MacBook laptops, are produced in china.
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