There are many articles on the Internet about how and Apple treat suppliers. Most of them are negative, and people often ask me for confirmation. I have never worked for Apple, and I have no business relationship with Apple. This is purely from a third-party perspective, based on what I have seen and heard in Silicon Valley 20 years, and the top high-tech companies in Silicon Valley on suppliers and supply chain management. Common practices on the topic, share some personal opinions.
Question 1: Apple eats meat, suppliers drink soup. Are the profits Apple gives its suppliers really as thin as a razor blade?
A reporter asked me this question, and I gave her an analogy: Suppose you write a detailed report, spend several weeks doing research, and burn a lot of oil. Now that the manuscript is written, I will help you. Type into the computer (go forward twenty years, and there are plenty of typing services on the street). If this report is worth 10,000 yuan, how much are you willing to pay me? 100 yuan is probably good enough.
There are indeed people in this world who eat meat, but that is because they are eating meat; some drink soup and some gnaw bones, because their value is only as much as drinking soup and gnawing bones. Apple has made a lot of money, but that is the result of the hard work and innovation of tens of thousands of outstanding engineers. It is not a privilege given by any government. How is it unfair? A few years ago, the real estate tycoons made a lot of money. They were eating meat, and the construction companies didn't even have to drink soup. Why doesn't anyone make an issue out of this?
Yes, the profit margins of many Apple suppliers are quite low, and some even lose money. But we can’t just blame Apple when we see this. Take 2021 as an example. TSMC’s largest customer is Apple. 26% of its revenue comes from Apple, but its net profit margin is as high as 37.5% (see clearly, it is net profit, not gross profit); Apple is also two of the Qualcomm One of Qualcomm’s largest customers, Qualcomm’s net profit margin is nearly 27 percentage points. Why are TSMC and Qualcomm also eating meat, even more than Apple (Apple’s net profit is 26%)? This lies in their value: in the field of top chips, no one does better than TSMC and Qualcomm; Apple's mobile phones are good largely because their chips are good.
The main company with razor-thin profits is OEM company . The value added of the foundry industry is limited, how high can the profit be? But that doesn’t mean Apple’s OEMs are worse. For example, Foxconn OEMs for Apple. Although "profits are as thin as razor blades", there will be a net profit of 4.6 points in 2021. What about Flextronics, the world's second largest OEM? Not much business comes from Apple. Why did it only earn 2.5 points in the same year? It’s not profitable to do OEM work for Apple, but what about OEM work for , Xiaomi, and ? Lei Jun said in a high-profile manner that Xiaomi's comprehensive hardware net profit does not exceed 5% (what a great sentiment), so Xiaomi's OEM should make a lot, right? As the main OEM of Xiaomi mobile phone , FTZ 's net profit in 2021 is 0.7%. Of course, this is much better than the loss in 2020.
Those who know themselves well do not blame others. In this world, you get what you deserve. If an enterprise wants to change its position in the supply chain and obtain higher returns, it must improve its own capabilities and do things with higher added value.
Question 2: Apple has very high requirements for suppliers, and they are merciless. If they can do it, they will do it. If they can't, they will replace them decisively. Is that true?
What I want to ask is, if your mobile phone overheats, is too slow, freezes, or has a damaged screen, will you show mercy to companies such as Apple, OPPO, and Xiaomi? Is there anything wrong with being demanding? To make such a good product, we have to have high requirements. For many key components, mobile phone manufacturers use the same suppliers. Why do Apple's products have no flaws, while other companies often have problems? It’s not because Apple has higher requirements and better quality (of course Apple also pays higher prices).
For excellent suppliers, the high demands of top customers are not a problem - that is the opportunity for high-quality suppliers to stand out; what is really difficult to deal with is those inferior competitors who engage in relationships and unfair competition. This is just like in a company, excellent employees don't worry about how difficult the work is. How many people are exhausted from work? What really makes people turn heads is corporate politics. This is also a characteristic of many Silicon Valley companies: suppliers can just do a good job, and there is no need to work on "human feelings" or "relationships". When I was managing suppliers in Silicon Valley, suppliers never had to please me because they knew it was useless; whether they were a mule or a horse, performance would tell the difference. This is also the benefit of working with top clients: simplicity.
The top suppliers also grew up under high requirements. They worked with top customers like Apple. In order to meet those stringent requirements, they suffered a lot and suffered a lot, but they also developed good skills, which became their business card to enter more fields and gain access to more customers. It can be said that Apple has improved the level of many industries. No company in history can match it, and Chinese suppliers can be said to be one of the biggest beneficiaries.
Steve Jobs does not do charity, and Apple does not show mercy. The fundamental reason for a company to make so many great products, satisfy billions of consumers, give shareholders top-notch returns, and give employees generous remuneration and development opportunities is that they are doers, rather than just saying "what they say" Done". Iron Man Musk once joked, look at all the Big Macs, when was the last time they developed a good product? As for Apple, despite its size, it launches top-notch products every year. It has been leading the industry for ten years, which is inseparable from their high requirements for ten years, not only for their suppliers, but also for themselves.
Being merciless does not mean that if the supplier can do it, it will be done, and if it cannot do it, it will be replaced immediately. Like those outstanding Silicon Valley companies, Apple's focus on key suppliers is not so much light selection and emphasis on elimination, but emphasis on selection and light elimination. To do business with a company like Apple, you must go through strict audits. Whether it is production, quality, process or technology, you must meet specific requirements, otherwise you must have a corresponding improvement plan. Once a supplier proves to be the best among its peers, companies like Apple will continue to improve through subsequent management, rather than eliminating suppliers and starting over from scratch just for the last five cents.
In the electronic product industry, the replacement of key suppliers is a long-term process, often taking years. Companies like OFILM seem to have been suddenly eliminated by Apple. In fact, it is just because we suddenly knew: for key components such as lenses and chips, supplier deployment often has to be done a year, two or even years in advance; never Since being selected as Apple's next-generation product, OFILM has already been out. So what we outsiders know about these key supplier replacements is just the tip of the iceberg.
may seem ruthless, but in fact, under the high requirements of companies like Apple, suppliers must either keep pace with the times or sink to the sidelines. There is no other choice. After all, Apple changes suppliers based more on technology, workmanship and quality, which is many times better than companies that frequently eliminate suppliers because they can't get the last five cents from their suppliers.
Question 3: Many suppliers switch factories to Vietnam and India. Is it closely related to Apple?
The transfer of manufacturing, especially high-volume manufacturing, is not news. Decades ago, manufacturing centers moved from North America to Southeast Asia, then from Southeast Asia to mainland China, and now to lower-cost regions such as Vietnam and India. Every industrial transfer will become a political topic in the country of transfer. Take the United States back then as an example. People were so sensitive to "outsourcing" that they even found other words to replace it, but they could not stop the transfer of industries.
The layout of Apple’s supply chain in different countries does not need to be overly politicized.For Apple, only about 40% of its revenue comes from the United States, and they do not rely on U.S. government contracts to make money. How much motivation do you have to be a pawn of American politicians and make trouble with other countries? The nature of capital is to pursue profits. Of course, the investment environment and international politics will also be taken into consideration, but there is no need to over-interpret this. This is like asking you, a new restaurant has opened in a nearby community, it is of good quality and low price, and the boss is kind. Would you still go to the small restaurant downstairs to see the face of the landlady?
For China, the transfer of low value-added manufacturing is not a bad thing. Think about it, who wants to send their children to the production line, work 12 hours a day, and be exposed to noise, heat, and dust? This also forces our companies to upgrade their industries and do more valuable things. What has to go always has to go, and it should go. Even if he stays or comes back, it may not be a good thing. Take the United States, for example. It has been clamoring for the return of manufacturing, but when it comes back, how many people will be willing to do low-income jobs? Foxconn wanted to defy destiny and realize Trump 's "eighth wonder of the world" by investing tens of billions of dollars to build a factory in Wisconsin. In the end, it faltered, shrinking step by step, and the thunder was loud and the rain was small.
As a top company in the world, Apple plays a key role, even a leading role, in the flow of manufacturing. Because only large companies like Apple have the resources to take the lead and gain first-mover advantages. I don't think companies like Apple have done anything wrong. As a Chinese supplier, it is also a good choice to follow the top customers to promote business in the region and obtain the maximum return from this historic change. This is just like the outflow of American manufacturing and American suppliers setting up factories in Southeast Asia and mainland China.
Of course, when we talk about Vietnam and India today, it is the same as Hong Kong and Taiwan talked about the mainland twenty or thirty years ago. Vietnam and India do not have good infrastructure, employee training is not good, and supporting industries are also very weak. Don’t laugh at the poor young man. Don’t forget, when Motorola first arrived in China more than 30 years ago, it had to teach local suppliers step-by-step to even make a hand-held paper bag. This is also a challenge in global sourcing: if the price of suppliers in one area is too high, go to a lower-cost area. The prices of suppliers there are very good, but the quality is not good; when the quality of suppliers in this area improves, the prices It was not good, so I went to the next low-cost area and started a new reincarnation.
What comes must come and what must go are all natural laws. The same bottle of water is half empty. Some people see it as half empty. I hope you see it as half full. Overall, it's a blessing to work with a customer like Apple. Apple's technology is iterating year by year. As long as suppliers can keep pace, the business will have a certain degree of predictability, and even if the profits are not high, they will still be profitable. Think about it, there are many famous companies, and how many of them are short-lived. As far as mobile phones are concerned, Motorola, Ericsson , Nokia , Blackberry , HTC, not to mention those from Japan, have each taken the lead in just a few years. If the suppliers were on board, it wouldn't be long ago.
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