SCDATA | GCPS System

Sourcing Analytics

Explore and Select Suppliers Globally

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Apple Reinvented The Smart Phone

iPhone: 1st multi-touch screen phone

From 2007 to 2010, Apple made $27 billion with a profit $15.6 billion

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Sourcing Contributed Significantly to iPhone's Financial Success

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Samsung Took Over Apple by Cost Advantage*

How can Apple continue the success?

* Raza Rafique, KwonGi Mun, Yao Zhao (2014). Apple vs. Samsung – Supply Chain Coopetition. Case study of Rutgers Business School.

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It's Common for One Company to Invent Technologies but Suppliers to Take Over by Cost Advantage …

How to source globally to maximize benefits and minimize risks?

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Benefits of Global Sourcing

Sourcing can significantly improve net income and thus stock market performance!

Source: https://www.scdata.ai/project/19934

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Risks: Business Continuity, IP / Competition, Quality, …

Explore / select suppliers: New suppliers (products & services) emerge, corporate changes (M/A, bankruptcy) constantly – frequent adjustment of supply base.

Manage suppliers: Millions $, hundreds of thousands of SKUs, thousands of suppliers.

Sourcing is heavily data driven
Data analytics is critical to support sourcing decisions

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Sourcing Analytics

Supplier intelligence: Explore and select suppliers globally.
Bargaining power analysis: Measure leverage.
Supplier benchmarking: Compare suppliers’ pricing, profitability, health and supplying capability.

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Assessing Needs & Supplier Selection Criteria

Align supplier selection criteria with the firm’s strategic objectives

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Assess Needs and Supplier Selection Criteria

Methodologies:
- Industry trend
- Competition positioning: strengths and weaknesses
- Breakdown analysis: identify strategic priorities

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Technology Hardware Industry Trend

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Significant booming during the pandemic but is slowing down in both revenue and profits most recently.

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Apple's global competitors

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Enterprise by revenue 2023: Apple is the leader in revenue in the technology hardware industry. But Samsung is quite comparable in size to Apple.

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Profit frontier

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Within the SP500 IT companies, Apple led in total revenue but not in profit margin, MSFT is better in operating margin than Apple.

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COGS is the major cost driver

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A revenue breakdown shows Apple’s gross margin is 44% in 2023, fallen substantially from the 56% of iPhone in 2007-10.

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CPU Supplier Selection Criteria

Technology, quality & supplying capability

1.Innovative & technological capability, quality

2.Production and supply chain capability

Cost savings

3.Pricing / profitability

4.Bargaining power

Risks

5.Financially health / robustness

6.Leaks & competition

...

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Supplier Intelligence

Explore and identify potential suppliers globally

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Supplier Intelligence

Steps:
- Where to find them? Business geo-information.
- Market trend and stability.
- Market concentration & competition intensity – competitive vs. monopolized.

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Where to look for semi-conductor suppliers?

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Where to look for semi-conductor suppliers? Let us check out the countries with the strongest semiconductors industry. By revenue, we have US, China, Taiwan, Korea, Japan, …

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Where to look for semi-conductor suppliers?

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Bar chart shows more clearly their relative sizes.

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Industrial Trend - Semiconductors

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Trend and stability: Overall, the semiconductors industry of US, Taiwan, China and South Korea are rising: US semiconductors is the largest and most profitable, and also growing fast especially during COVID. Taiwan is second in size and profit. China is large but less profitable, South Korea is smaller.

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Market Concentration

Major players? Competitive or monopolized?

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Concentration and Competition Intensity - US

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US semiconductors: very competitive and has lots of choices … it’s becoming less concentrated … The major players are Intel, Qualcomm, TXN, Broadcom, AMD ...

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Concentration and Competition Intensity - Total Revenue

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Taiwan semiconductors: a dominant player (TSM) + lot of choices. The market is becoming more concentrated. Major players: TSM, ASE, and MediaTek.

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global semiconductors suppliers

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Globally, TSM is the largest ...

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global semiconductors suppliers

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Considering size and diversity, some potential suppliers for the CPU of iPhone could be TSM, Intel, Qualcomm, Broadcom, AMD, TXN, and Gobalfoundries, …

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Potential Suppliers (CPU / Processor)

TSM
Intel
Qualcomm
Broadcom
AMD
Texas Instruments
Global Foundries

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Bargaining Power Analysis

What is my leverage? Who has the bargaining power?

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Leverage

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Bargaining Power

If my leverage > your leverage, I have the bargaining power, vice versa.

- If I buy 50% of your volume which is 5% of my spend, I over-power you
- If I buy 5% of your volume which is 50% of my spend, you over-power me
Bargaining Power Index = buyer (my) leverage / supplier (your) leverage
- BPI << 1, supplier has power, vice versa
- BPI = My total spend / Your total sales

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Example: Apple BPI with IC Suppliers 2022

Semiconductors	Apple’s spend $M	Suppliers’ Revenue $M	BPI
IC total	67060
ADVANCED MICRO DEVICES (AMD)		23601	2.84
GLOBALFOUNDRIES (GFS)		8108	8.27
INTEL (INTC)		63054	1.06
QUALCOMM (QCOM)		44200	1.52
TEXAS INSTRUMENTS (TXN)		20028	3.35
BROADCOM (AVGO)		33203	2.02
TAIWAN SEMICONDUCTOR MANUFACTURING CO (TSM)		73868.23	0.91

Apple has power over all suppliers except TSM

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Supplier Benchmarking

Compare suppliers’ pricing, profitability, health and supplying capability

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Supplier Benchmarking

Steps:
- Pricing / profitability analysis: pricing, profitability, efficiency.
- Financial health analysis: short / long-term liabilities and risks.
- Production & supply chain capabilities.

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Pricing / Profitability Analysis

Pricing: Gross margin, value added (e.g., technology)
Profitability: Net margin.
Ideal suppliers: Attractive pricing and very profitable.
Deceiving suppliers: Attractive pricing but barely profitable.

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Pricing and profitability

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Semiconductors two groups: (1) INTC, AMD, GFS: lower pricing, still profitable (2) TXN, Broadcom & TSM higher pricing very profitable. TSM: more profitable w/ lower pricing than TXN, AVGO.

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Enterprise Trend - Profitability

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Trend provides more comprehensive picture, confirms the insights in previous slide. In addition, it shows …TSM / TXN had highest net margin constantly. INTC / AMD went down. GFS broke even for the first time. QCOM / AMD ROA fluctuated more than others

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Financial Health Analysis: Short-term sweets vs. Long-term crisis

For critical parts, you need the suppliers to have a rock-solid financial health.

A typical trap: good one-time deal and long-run crisis.

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Liabilities vs. Equity

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Breaking down these companies’ total assets by liabilities and stockholder equity, we can see that TSMC has the highest % of equity and lowest total liabilities. Qualcomm has significantly more non-current liabilities than other suppliers. Intel is very healthy on equity and liabilities with equity > 50% of the total assets. Despite losing money, GF is also very healthy in terms of equity and liabilities.

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Production & Supply Chain Capabilities

Does the supplier have sufficient production capacity: PPE?

Can the supplier secure production equipment and raw materials?

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IC designer vs IC fabriactor

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Three kinds of semiconductors: IC designer, IC fabricator, IC designer and fabricator. By their PPE and IP, AMD/Broadcom = IC designer, TSM/GFS = IF fabricator, INTC/TXN = IC designer & fabricator.

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Property, Plant and Equipment