Market Overview

Apple's Move To Ditch A Supplier Was 'Ruthless' But In-Line With Long-Term Vision

Apple's Move To Ditch A Supplier Was 'Ruthless' But In-Line With Long-Term Vision

Apple Inc.'s (NASDAQ: AAPL) decision earlier this week to no longer buy technologies from Imagination Technologies sent the latter tumbling as much as 70 percent.

According to CNBC's London-based technology correspondent Arjun Kharpal, Apple was most certainly "ruthless" in its move to ditch a supplier but that doesn't tell the whole story. Instead of relying on Imagination's products, Apple will begin developing its own graphics processing units (GPU) products to power its products including the iPhone.

Kharpal suggested Apple's decision shouldn't be surprising, especially when factoring in the company's less-than-perfect relationship with suppliers. Even heavyweight members of Apple's supply chain, such as QUALCOMM, Inc. (NASDAQ: QCOM), has been slapped with a lawsuit in January.

Apple Defending Its Margins

Kharpal's report argued Apple's long-term strategy remains unchanged: control as many elements as possible within its supply chain.

"One of Apple's successes has been built on the fact they tightly control all elements of hardware, software and services, it's a unique set of assets," Ben Wood, chief of research at CCS Insight, told CNBC.

Kharpal noted that Apple's 38.5 percent gross margin in the December-ending quarter is notable, especially for a consumer electronic company. But Apple has made this possible by controlling more elements of the supply chain and squeeze its suppliers at the expense of their profit profile.

In Imagination's case, Apple is parting ways with a supplier that develops GPUs considered to be a vital component to artificial reality, artificial intelligence and even self-driving cars. It isn't clear if Apple can replace Imagination with its own in-house technology since Imagination holds many patents and intellectual properties.

This reality even led some analysts to suggest Apple would consider acquiring Imagination to gain access to its technologies and expertise.

See Also:

Encouraging iPhone Data Leads PacCrest To Lift Apple's Price Target

Goldman Highlights Positive iPhone Data Out of China, Taiwan

Posted-In: Apple Apple Supply Chain CNBC Imagination TechnologiesTech Media Best of Benzinga


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