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How Apple is Able to Keep its Supply Lines Open

by Sean P. Aune | April 24, 2011April 24, 2011 8:00 am PDT

Apple and MoneyDuring the most recent earnings call for Apple, acting CEO Tim Cook stated that the recent Japan Earthquake-Tsunami would cause “no material supply impact” to the company this quarter.  Considering the number of parts still made in Japan, and the fact that it is now believed that the Sony NGP will be miss its fall launch window due to the disaster, one has to wonder how Apple is able to get through this unscathed.

There is one very simple answer to that: Money.

According to a recent report by CNN Money, Apple executives were quickly dispatched to Japan after the disaster struck with as much money as they needed to convince suppliers to prioritize them in the backlog of orders that would soon be building up.  Recent reports show that Apple has a war chest of $60 billion in cash, so throwing a few million down here or there isn’t going to make the company even blink if that is what it’s going to take to keep its products flowing.

There is also one other thing that Apple has going for itself, and that is its lack of products.  While some pundits have said that the company could be putting itself at risk by putting all of its eggs into one basket, it also pays off in the lower number of parts that it needs to purchase.  “The products are hot, (Apple’s) got $60 billion in cash, and it’s a big company.  Those three factors allow it to get more of its fair share of components, and ultimately market share,” Brian White, supply chain and Apple analyst at Ticonderoga Securities told CNN.

Besides the NGP, Sony has also said it is going to need to delay its Xperia Play gaming phone due to constrained supplies.  These two devices are going to be running different hardware, so that increases the company’s exposure to potential supply shortfalls.  Apple, on the other hand, is reusing parts across many of its devices meaning that it can purchase larger quantities of a part such as RAM chips because they aren’t in just one device.  This places them higher in the food chain to begin with due to volume purchasing, and when you throw in some extra cash to keep things flowing, it’s a no-brainer which company will receive its orders first.

Is it fair that Apple should be feeling no pain from the supply constraints?  In a Utopian world, no, but in a free market capitalist society, why not?  The entrepreneurial spirit is defined by people that have said “why not” to gaps they see in a market, or a need that is going unfulfilled.  Any company could have followed the same path and offered to pay a premium for preferential treatment, but Apple asked “why not” and got there first.  Add in the fact that it doesn’t need as many parts, and you have a winning scenario for Apple.  “In times of a shortage, suppliers are going to sell to their biggest customers first,” Tom Dinges, senior electronics manufacturing consultant at IHS iSuppli, told CNN.  “For a company of Apple’s size, no one out there sells so few different products.  As a result, Apple’s sourcing strategy can be much more finely tuned than other companies with very disparate products.”

I keep coming back in my mind to a line from Dune by Frank Herbert about the drug that kept the universe flowing, “The Spice must flow.”  In the case of Apple, “The chips must flow”, and flow they shall.

What do you think?  Is it unfair that Apple is not feeling any impact from these component shortfalls?


Sean P. Aune

Sean P. Aune has been a professional technology blogger since July 2007, but his love of tech dates back to at least 1976 when his parents bought...

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