Apple's empire is shaken, and semiconductor suppliers are in a state of panic

At the end of January 2019, Apple announced its first quarter results for fiscal year 2019, and its financial report showed that its revenue for the quarter was 5% lower than the same period last year. iPhone sales were US$51.982 billion, down 15% from the same period last year. Most importantly, revenue in Greater China was US$13.169 billion, down 27% from US$17.956 billion in the same period last year. At the same time, Apple decided to adjust the pricing of iPhone in China.

Two years after the price adjustment, according to the latest analysis report from UBS, Apple's iPhone sales in the Chinese market have passed the "most difficult period" and are now recovering. At the same time, the report also pointed out that although the sales situation in March is still not optimistic, the sales growth brought about by the hot sales of iPhone 8+ and other older iPhones due to the price reduction activities does not represent the success of the new phones.

To make matters worse, Apple's troubles don't end there. Since December last year, Apple and Qualcomm have been entangled in patent lawsuits, and sales bans have followed in China, Germany and other places, forcing Apple to spend money and effort on the lawsuit. At the same time, after years of development, domestic mobile phones have improved in function and quality, and have won the favor of users with their high cost-effectiveness.

The slump in Apple's mobile phone sales has brought a huge impact on suppliers and foundries around the world. According to Apple's 2018 Supplier Responsibility Report, among the company's top 200 suppliers, 51 are from Taiwan, China; 44 are from Japan; the third is the United States, with 40; and the fourth is China, with 34, including 7 from Hong Kong, China. These 200 suppliers represent 98% of Apple's global raw materials, manufacturing and assembly expenditures in 2017.

In this list, manufacturers in Taiwan account for the vast majority. According to Yuanta Investment Consulting, Apple's supply chain contributes up to 12% of Taiwan's economic size (GDP) each year. Therefore, in the past decade, there has been a saying that "one apple saved Taiwan." Taiwan's Economic Daily once pointed out that Taiwan's semiconductor leader TSMC is the main supplier of Apple's mobile phone processors; the global foundry assembly leader Hon Hai is Apple's largest assembly plant; and optical manufacturing stock king Largan is the main supplier of mobile phone lenses. These three leaders, plus a large number of other components and mid- and downstream factories, form an important part of Apple's supply chain. However, with Apple's recent poor performance, Taiwan Caixin Media Chairman Xie Jinhe believes that Apple may no longer be able to support half of Taiwan's electronics industry.

This view is not groundless. Since last year, a number of Taiwanese manufacturers in Apple's supply chain have reported more or less unsatisfactory news. According to the tracking of Nikkei Asian Review, 19 Taiwanese technology companies were affected by this, and their revenue in December last year fell by 1.32% year-on-year.

According to a report by Taiwanese media on November 16, 2018, one of Apple's Taiwanese suppliers, printed circuit board manufacturer Jia Lianyi, reported that its factory in Taoyuan had reduced production without warning, and more than 100 contract workers had been laid off. At the same time, with the launch of 5G mobile phones, the market is generally optimistic about the growth of LCP soft board antennas. Therefore, Jia Lianyi invested in the LCP FPCB production line in 2014, hoping to join Apple's 5G antenna supply chain. Jia Lianyi invested 10 billion yuan to set up a new production line in Guanyin, Taoyuan, to produce liquid crystal material (LCP) soft board antennas. The new Guanyin plant includes LCP soft board antennas or traditional soft boards, all of which are mainly supplied to Apple. However, Apple has been slow to make any moves on 5G, and Jia Lianyi has also been affected. As of December last year, Jia Lianyi's stock price has fallen by more than 20% in three months. In February this year, Taiwanese media reported again that Jia Lianyi, a supplier of Apple mobile phone soft board antennas, plans to lay off 434 employees on the 21st of this month. However, Jia Lianyi said that layoffs were an inevitable decision and hoped that after this round of personnel adjustments, the company would be able to overcome the difficulties.

In terms of flexible boards, Apple's suppliers include Japan's Flagship and Taiwan's Zhen Ding, Sumitomo, Dongshan Precision, Fujikura, Taijun, etc. The main customers of the world's top six FPC manufacturers are all Apple. Japanese and Taiwanese manufacturers are highly dependent on Apple orders, so their shipments have been greatly impacted.

According to a report from China News Service in Taipei on February 13, affected by Apple's declining performance, Amkor, an American semiconductor company, is said to be laying off nearly 100 employees in its Taiwan branch at the end of February. The China Times quoted Taiwanese media on the 13th as saying that Amkor's Taiwan branch has a high proportion of mobile phone business, and some production line employees have changed from "work four days and rest two days" to "work two days and rest two days." An employee broke the news that the company will lay off nearly 100 people at the end of the month. In response, Amkor did not respond positively, only saying that it would communicate with the labor unit and handle everything according to the law.

At the same time, Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) and Foxconn (formally known as Hon Hai Precision Industry), as the most important manufacturers in Apple's supply chain in Taiwan, have also been affected by the decline in Apple's mobile phone sales. For TSMC, this impact is not large. In 2018, TSMC's revenue fell slightly by 0.07% from a year ago to NT$89.83 billion. But TSMC's customers are far more than just Apple. TSMC's investment in advanced processes in recent years has made the company favored by companies other than Apple, and has become a company that cannot be underestimated in the new era.

In contrast, Foxconn was constrained by Apple's adjustment of mobile phone prices, which forced Foxconn to reduce operating pressure, lay off nearly 340,000 employees, and reduce 15 iPhone-related production lines. According to Japanese media reports, Foxconn's sales in December last year fell by more than 8% year-on-year, which was the first year-on-year contraction in Taiwan's technology industry in 10 months. However, Foxconn recently received orders from Huawei, which gave it new development opportunities.

In addition, from the perspective of the group, the Pan-Hon Hai Group has the most entries in the list, including 27 manufacturing bases related to the Hon Hai Foxconn Group, 4 FIT under the Hon Hai Group, 5 Sharp, and 1 Kangdazhi, totaling 37 Pan-Hon Hai Group bases. Affected by the Apple mobile phone, Hon Hai's market value fell to NT$985.7 billion, which is the first time it has fallen below the trillion mark since November 2013.

In addition to Taiwanese manufacturers, Japanese manufacturers in Apple's supply chain are also having a hard time. JDL, the only Japanese display panel supplier among Apple's top 200 suppliers, suffered a sales decline for Apple phones. Last year, JDL lost 14.2 billion, and even laid off 30% of its employees. According to a report by the Wall Street Journal on January 23, affected by the decline in Apple phone sales, JDL has sought investment from investors from China and Taiwan.

According to a report in the Shin Min Daily News in March 2019, a local foreign-funded electronics manufacturer, ams AG, recently laid off a large number of foreign factory workers in batches. ams is mainly a supplier of ambient light sensors, one of its main customers being Apple mobile phones.

At the same time, according to the top 200 suppliers released by Apple, more than 40% of the suppliers are from China. In January 2019, the Investor Report studied the stock prices and performance of Apple's 123 major suppliers in the past 52 weeks and found that 93 companies' stock prices fell, including 48 Chinese companies, and 10 A-share listed companies had a stock price drop of more than 50%. Among them, Lens Technology, whose revenue comes from nearly half of Apple, suffered a heavy blow. Lens Technology's stock price has fallen 69.13% since its high point in the past 52 weeks, and its market value has evaporated severely. New Apple suppliers such as BOE A, Meiyingsen, OFILM Technology, and Changdian Technology have also been affected to varying degrees.

Apple's success has created a mobile phone empire and also contributed to the rise of a number of suppliers. Economists have long told the world that eggs should not be put in one basket. Although it is good to lean on a big tree for shade, it is inevitable that the tree will attract the wind and encounter severe winter. Suppliers should try to avoid excessive dependence on one company, so as to gain more voice in the two-way selection.

Text/Semiconductor Industry Observer Jiang Siying

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