For more than a decade, Apple has sat at the center of the technology supply chain. Its massive scale allows it to set prices, lock in production capacity and dictate the direction of roadmaps for suppliers that make everything from chips and memory to substrates and packaging. Those days are coming to an end.
“Apple is no longer the center of gravity in the hardware world,” said Brad Gastwirth, global head of research and market intelligence at Circular Technology, which tracks the industry’s supply chain.
“Apple still sells a lot of products and has unparalleled brand power. But the company is no longer a core customer for factories, circuit board manufacturers, and major component suppliers. This is a fundamental change.”
This is important because technology companies that manage their supply chains are likely to win. The ability to order maximum quantities of key components results in lower prices and greater reliability of supply. As a result, our products are available faster and at lower prices than our competitors. This power is now shifting to AI giants, including giant cloud players such as Nvidia, Amazon, Microsoft, and Google (also known as “AMG”).
The most obvious sign is at TSMC, the world’s largest chipmaker. The company is famous for churning out cutting-edge iPhone chips, which has given Apple a huge advantage over other consumer hardware players.
When TSMC reported its earnings this week, it became abundantly clear that its smartphone business is no longer its most important segment. High-performance computing, a category dominated by AI chips for companies like Nvidia and hyperscale cloud providers, now accounts for about 58% of TSMC’s revenue, far more than smartphone processors.
TSMC investor presentation chart TSMC
TSMC makes chips for Nvidia’s AI servers, and the cloud giant supplies them in bulk. They pack this equipment into huge data centers to train and run AI models to power new services like ChatGPT. Is it a better business than making iPhone chips?
TSMC CEO CC Wei replied. He’s been talking a lot to AI giants lately. At this week’s earnings conference, he said:
“They showed me evidence that AI is really helping their business, so they’re growing their business well and seeing financial benefits. So I also looked at their financials. They’re very wealthy.”
Suppliers go where the money is. Increasingly, the biggest Benjamins come from AI and cloud giants rather than Apple.
memory shift
This change has rippled through the rest of the supply chain. Memory chip makers are reallocating capacity from phones and PCs to supply AI data centers that need dynamic random access memory (DRAM). This is a common type of memory chip used in AI servers and iPhones.
Memory prices have been rising recently, which could increase the cost of smartphones and put pressure on profit margins. Nvidia has secured long-term memory supplies, reducing smartphone makers’ bargaining power.
“For the past 15 years, Apple’s size has dictated its component supply, pricing and roadmap,” Gastwirth said. “If suppliers get higher profits and higher growth from AI customers than from smartphones, their influence will decrease.”
confusing bottleneck
Bottlenecks are also appearing in unexpected places. With a shortage of high-grade glass cloth, a key raw material for chip substrates, suppliers are prioritizing AI customers who pay upfront and sign multi-year contracts.
Apple, which uses these substrates in nearly all of its products, is now competing with AI chip makers for limited supplies and even sending engineers to help smaller suppliers qualify alternative materials, according to a report this week in the Nikkei Shimbun.
foxconn moves forward
Manufacturing partners are also reprioritizing. Foxconn, once synonymous with iPhone assembly, now makes more money from AI servers than from consumer electronics. The fastest growing customers are hyperscalers and Nvidia, not Apple.
None of this makes Apple irrelevant. The company remains one of the world’s largest parts buyers. But in a supply chain that is being shaped by AI, where pricing, allocation, and capacity planning are set elsewhere, Apple is learning what it’s like to just be a large customer.
“In the 2010s, Apple set the pace of the supply chain,” Gastwirth said. “In the late 2020s, Nvidia, hyperscalers, and AI infrastructure began to determine pricing, allocation, and long-term capacity planning.”
Apple did not respond to a request for comment Friday.
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