Being an Apple supplier can be a curse as much as a blessing for some Chinese companies.
While earning Apple’s business can give a big boost to a company’s stock, a new study found that Apple’s suppliers saw their share prices drop significantly lower than Apple’s stock did during the recent iPhone sales slump.
Apple has become increasingly dependent on Chinese companies for its parts in recent years, even as a trade war with the U.S. and China has been brewing. The average share price for Apple’s suppliers dropped by 23% from the year before, according to The Information. Meanwhile, Apple shares only took a 5% dip.
The report reveals investors have a limited time to capitalize on a supplier’s new components contract with Apple. Once Apple adds a company to its list of suppliers investors usually gobble up shares. Components can quickly become commoditized in the supply chain though and the stock gets dumped when iPhone sales start slumping.
Chinese companies bare the brunt of investors’ wrath. Most of Apple’s suppliers are based in Japan, Taiwan and China. In 2018, 31 of Apple’s top 200 suppliers were Chinese-owned, up from only 12 in 2012.
Apple is one of the most profitable companies ever so it’s not surprising that suppliers are making all-in bets by latching onto the iPhone’s business. Those companies don’t have the benefit of other revenue streams like Apple does.
“A company that becomes successful through disruption tends to impoverish its supply base…and tends to become a gravitational force field attracting profits,” said Mr. Dediu, in an interview with The Information. “You have to catch the wave with this type of investment, because once investors even sniff the wave is over, they just completely sell the stock…and punish them hard,”