Apple Supply Chain: There is no denying the fact that many companies all over the world rely on Apple Inc. (NASDAQ:AAPL) to survive. This is particularly true for manufacturers that work closely with the Cupertino-based company to produce its products.
Unfortunately, some of these companies often times find out the hard way that “putting all their eggs in one basket” is never a good idea.
Reuters is reporting that (emphasis added) “Hon Hai Precision Industry Co Ltd, the main manufacturer of Apple Inc products, posted a 19 percent decline in sales in the first quarter compared with a year earlier, hurt by disappointing demand for the iPhone.”
In other words, the decline in sales in the first quarter of 2013 has nothing to do with the way Hon Hai Precision Industry Co Ltd is doing business. Instead, it is tied to the fact that the Apple Inc. (NASDAQ:AAPL) iPhone was bogged down by disappointing demand.
The article goes on to provide some statistics. For the first quarter, the manufacturer totaled “T$808.97 billion ($26.96 billion), down from T$988.34 billion in the fourth quarter and T$1 trillion in the first quarter last year.”
While it may be difficult to feel bad for a company that is generating so much money, they have been hurt big time by a decrease in demand for the Apple iPhone.
KGI Securities analyst Ming-chi Kuo goes on to discuss the decline:
“A quarterly decline was expected, but not a yearly decline. This shows that Hon Hai’s revenue depends too much on Apple, and iPhone orders corrected more than expected.”
As you can see, Ming-chi Kuo agrees that the manufacturer is putting too much into its Apple business. While it makes good sense for the company to rely strongly on AAPL, since it is one of the top companies in the world, it has to be careful about tying in too closely.
Just how much does Hon Hai rely on Apple Inc. (NASDAQ:AAPL)? Here is more from Reuters:
“Hon Hai draws an estimated 60 to 70 percent of its revenue assembling Apple’s iPhones and iPads, and carrying out other work for the California-based company.”
Imagine this: Apple decides that it no longer needs to rely on Hon Hai as part of its manufacturing chain. This would more or less kill the company for good.
If demand for the Apple Inc. (NASDAQ:AAPL) iPhone picks up in the future, it means good things for Hon Hai. Of course, if sales remain flat or decline, it could spell more trouble in the quarters to come.
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DISCLOSURE: I have no positions in any stock mentioned.
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