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iPhone 5 Bigger is Better – And we mean supply chain impact

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How could we NOT write about Apple's preorder release of the iPhone 5? Not just because it is Apple, or the next iPhone, but importantly because Apple is one of the top two, Tier 1 OEMs in our industry. That means, what Apple passes through the semiconductor and electronics supply chain, affects most of us to some degree or another.

It's about volume, sales volume

Rather than go through all the feature details for the new iPhone 5, the supply chain and industry impact of this latest, hot device is what we find particularly interesting. Why is one smartphone from one OEM so interesting? To hone in on one word: Volume. As The Economist so perfectly summed up the importance of the iPhone product line, "The iPhone is Apple's biggest product, accounting for 53% of the company's revenue. Indeed, if the iPhone were spun out as a separate company it would be bigger than Microsoft, whose revenues were $73 billion last year." With each iPhone having outsold each previous version, and analysts anticipating a strong adoption level for the iPhone 5, it is increasingly important to note Apple's impact on our industry as an OEM, much as we note Foxconn HonHai's impact as an EMS provider.

IHS iSuppli is certainly among those analyst groups forecasting significant growth from the iPhone 5: "IHS forecasts the iPhone 5 will be a major success in the market, helping to drive Apple’s smartphone shipments in 2012 to 149 million units, up 60 percent from 93 million in 2011 […] When combined with normal seasonality, IHS predicts the fourth quarter this year will be Apple's biggest quarter for iPhone sales in history."

Capabilities matter too

Certainly, the new features and specifications of the iPhone 5 are the major drivers for the anticipated sales volume, and these are also boosts for those along Apple's supply chain. While Apple does have a mostly closed supply chain, what Apple provides, so will the competition, so knowing what components are driving the latest iPhone 5 features, means there's a better than not chance that we'll see additional demand increase for competitive smartphones over the next cycle. Specifically, the latest features sported by the new iPhone 5 include (see CNet's drill-down and wrap up of the new iPhone 5 for a detailed discussion): the increase in size but decrease in weight (important for display manufacturers, especially); integrated touch-screen capabilities into the display; 4G LTE; the A6 chipset offering faster processing, graphics and improved image signal processing;  improved battery life; a third microphone; better signal-noise ratio for both optics and audio (separate components supporting these); new, smaller, all-digital, reversable dock connector; and a smaller, micro SIM card; to name some of the most notable component related features.

Economic boosts

Yes, smartphones from Apple and Samsung both are truly global economic stimulus packages. As the Wall Street Journal noted:

Sales of the new iPhone could add between a quarter and a half of a percentage point to the annualized rate of economic growth in the fourth quarter, J.P. Morgan Chase & Co.'s chief U.S. economist Michael Feroli estimates. That could help cushion the sluggish U.S. economy from other risks in the final months of the year. […]

The bottom line: The new iPhone sales could boost GDP by $3.2 billion in the fourth quarter, or $12.8 billion at an annual rate. That is an increase of 0.33 percentage point in the annualized rate of GDP growth. It could be even higher, he says. Even a third of a percentage point would limit the risk the economy would grow more slowly than J.P. Morgan's fourth-quarter growth projection of 2%.

That's not an insignificant economic event. If we consider that each phone includes the components from a number of manufacturers, the volume that is anticipated is certainly going to help boost the 2012 revenue and volume numbers for our industry. Coupling that positive movement with the follow-on sales of reduced price, older models now in reach for lower-priced CE purchasers, and the trickle-down effect along the mobile supply chain globally as those in emerging and developing economies seek to purchase low-priced smartphones, Apple's newest iPhone is going to have significant, positive impacts far beyond the sleek, light device showcased yesterday.


Lisa Ann Cairns, Ph.D.
Written on Thursday, 13 September 2012 19:37 by Lisa Ann Cairns, Ph.D.

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