Apple Looks To Rake In Chips

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What's going on?

Shares of UK-based Dialog Semiconductor dropped more than 20% on Monday as it confirmed that Apple, its biggest customer, could move the design of its chips in-house.

What does this mean?

Dialog shares are now down almost a third over the past week, following a Nikkei Asian Review report that Apple is designing its own power-management chips for use as early as next year, reducing its reliance on Dialog. Earlier this year, Britains Imagination Technologies, another Apple supplier, saw its value more than halved when Apple said it would stop using its chip designs (it was ultimately bought by a Chinese firm). The same may be about to happen to Dialog. On Monday, Dialogs CEO said 2018 revenue would be unaffected but he was coy about the impact in 2019, stoking fears that Apple will begin to dispense with Dialogs services.

Why should I care?

For markets: Having just one major customer is risky business.

Typically, the fewer customers a company has, the riskier it is as an investment. As Imagination found out to its cost, the departure of one key client creates a serious problem. Synaptics and Cirrus Logic are two other semiconductor companies that are vulnerable to Apple changing its supply chain. Its important for investors to consider how diversified companies revenues are.


The bigger picture: If a company can afford it, DIY is often the best approach.

A recent wave of acquisitions has reduced the number of suppliers that Apple works with, tilting the balance of negotiations in favor of its suppliers (e.g. they could, in theory, begin charging more, effectively holding Apple to ransom). Apple has also recently been fighting a particularly disruptive battle with Qualcomm, one of its biggest suppliers, over royalty payments. Instead of acquiescing to its suppliers increasing power, Apple appears to be working on ditching them altogether.

Originally posted as part of the Finimize daily email.

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