Apple Inc. (AAPL) Supply Chain Shifts To Transaction Model: JPMorgan

There have been signs that Apple Inc. (NASDAQ:AAPL) is looking to further diversify its supply chain, and now a group of analysts at JPMorgan believe the company is shifting from a partnership model to a transaction model for assembly of its products. The firm’s Asian Technology team issued a research note highlighting the shift they see happening in Apple’s production model.

Apple Inc. (AAPL) Supply Chain Shifts To Transaction Model: JPMorgan

Apple’s build strategy to match component strategy

Of course the goal with any company is to lower the costs associated with building its products and make its supply chain more resilient to potential problems or changes in the market. Currently Apple Inc. (NASDAQ:AAPL) uses more than one vendor with its components, although so far that strategy has been more limited in terms of the companies which actually build Apple products.

However, JPMorgan analysts believe that the company is shifting toward using multiple vendors for assembly as early as next year.

Apple’s relationships with suppliers

They said some elements of this type of strategy can already be seen in Apple Inc. (NASDAQ:AAPL)’s agreement with Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF). Pegatron is believed to be playing a major role in the assembly of the next iPhone.

Right now Hon Hai Precision Industry Co., Ltd (OTCMKTS:HNHPF) (TPE:2317), also known as Foxconn, handles most of the assembly for Apple’s products. Pegatron is second to Hon Hai in terms of volume for assembly of Apple’s products.

Apple’s supplier problems

But JPMorgan analyst Alvin Kwock and his team note that there have been some problems with the company’s current suppliers. A large number of iPhone 5s assembled by Foxconn were returned because they were defective. As a result, there’s tension between Apple Inc. (NASDAQ:AAPL) and Hon Hai. According to Kwock, Apple will have to take care of 60 to 70 percent of the cost of reworking those defective handsets.

Also Apple reportedly sent hundreds of engineers to Pegatron to help the company build out for iPad production. This would suggest that the company didn’t set aside the right amount of resources for the major project.

Signs Apple is expanding its supply chain

Reports have suggested that Apple Inc. (NASDAQ:AAPL) is looking to add two or more companies two its supply chains. Wistron and Compal Communications are two company names that have been floated by one analyst as being added to the company’s supply chain. Kwock believes Compal’s plant in Nanjing, China could handle assembly for both the iPhone and iPad, while the Taizhou and Kunshan facilities owned by Wistron could take care of assembly for the iMac, MacBook, iPhone and iPad.

Quanta Computer, which has been an assembler of Apple Inc. (NASDAQ:AAPL)’s Mac computers for quite some time, could end up becoming the company’s second big supplier, especially if rumors that it is working on the iWatch are true.

About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at