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Are Suppliers Facing Tough Choices?

Tablet computers and smartphones are eating notebooks' lunch in more ways than one. It looks as if component makers may have to choose between meeting demand in the high-flying tablet and smartphone markets, or in the more staid notebook market.

Last week, EBN contributing editors Marc Hermann and Jennifer Baljko reported on supply concerns expressed at the Mobile World Congress gathering. (See: MWC: Mobile’s Next Leap and MWC: Debates on Mobile Devices Give Way to Supply Issues.) Also last week, Asian trade publication DigiTimes ran this little tidbit: “Supplies of notebook components, including CMOS image sensors, chassis, batteries, and LED chips, are likely to suffer shortages as capacities at component suppliers are also occupied by orders for similar products from the smartphone and tablet PC sectors, according to industry sources.”

It's not surprising that consumer demand for the newer devices is siphoning components toward those markets. What is surprising is that it seems suppliers are facing an either/or conundrum: Do they meet notebook orders, or smartphone/tablet orders? And if that is the case, where does that leave all the talk — much of it on these pages — about long-term relationships, partnerships, visibility, and better forecasting?

In some, maybe most, cases, notebook makers also have skin in the tablet/smartphone game. So if supplies are diverted internally, it may not be visible to the end customer. It's the companies that specialize in notebooks — such as Acer, Lenovo, and Quanta — that may be waiting in line.

The real question for suppliers, then, is not which market to choose, but which company placed the orders first and how valuable the relationship is. When component supplies get tight, everyone in the supply chain has to make choices, and not all of them are easy.

It wasn't that long ago that companies were cancelling orders just to stay afloat. How these companies worked with their suppliers then may have an impact on the decisions suppliers make in the near future.

13 comments on “Are Suppliers Facing Tough Choices?

  1. Jay_Bond
    February 22, 2011

    I think what is going to ultimately help make a choice for some of these suppliers is who their customers are. If they have a choice between sending supplies to Acer or to Apple, I think most companies are going to send their components to Apple.

    In today’s marketplace size and power matter. I'm not going to agree with some of these choices, but suppliers face potentially damaging choices. Do we sell to the little guy who placed the order first, or do we fulfill the needs of the giant who can make or break us.

     

  2. Parser
    February 22, 2011

    Within eight to 12 months component producers will make parts available and if suppliers make bad relationships now they will pay later. Though suppliers’ choices have to be proactive and without offending. The table turns every few years. 

  3. DataCrunch
    February 22, 2011

    It will be interesting to see how well all of these new 2011 tablets sell.  It seems like we may have a tablet overload with potentially a lot of inventory lying around.   Any predictions?

  4. Parser
    February 22, 2011

    My prediction is that there will be maybe 5 different manufactures which will make money on tables (iPad style). Now I heard about around 90 manufactures fighting for the market. That will be a brutal war. More than 80 will be out of business. Apple will not loose it, but might be equal to two others. So far Kindle, not a full tablet, is holding on well. 

  5. SunitaT
    February 22, 2011

     I think this where “Pay in Advance” stratergy comes for the rescue. Recent article by Barbara http://www.ebnonline.com/author.asp?section_id=1071&doc_id=203635 defined how APPLE is adopting this stratergy of “Pay in Advance”  to secure guarantee supply of advanced LCD screens. This method will isolate the risk of touch choices both for supplier and consumer. But only tough part in this is forecasting.

  6. DataCrunch
    February 23, 2011

    Apple as a manufacturer may have more of a competitive advantage, specifically in pricing.  Apple makes their own device, their own operating system, their own chip, so they have more control and leverage on pricing and since they reap rewards from their iTunes app store on apps sold through it, they can even subsidize their devices based on this alone, if they felt the need.  Other companies in this space at this time don’t have all of these things going for them.  HP recently acquired Palm and is coming out with their TouchPad soon, which will run Palm’s OS and not Microsoft’s OS.  Obviously HP is trying to control their own destiny and keep most of the profits, similar to Apple.  

  7. mfbertozzi
    February 23, 2011

    I agree for Apple position. Furthermore, I should be more optimistic about notebooks market; mobile smartphone market is going to increase due to “blast” of mob apps, but to conceive and develop apps by developers, notebooks are needed. Any smartphone or table, right now, is in condition to provide developers with realistic sdk environment.

  8. Barbara Jorgensen
    February 23, 2011

    I think there is an aspect of short term gain versus long term relationship here as well. Eventually, there will be a shake out in the tablet and smartphone markets and only a few devices will be left standing. Apple being one vendor is a safe bet. But if component makers divert supply from longstanding customers in order to meet demand from newer ones, it could be a problem when the shake out comes and they bet on the wrong horse.

    At the same time, it makes business sense to meet demand where the demand is. The best of all possible worlds would be no shortages and all demand is met, but we aren't there and it seems we never will be.

     

  9. Taimoor Zubar
    February 23, 2011

    I agree that it would be a critical decision for suppliers to choose the industry that they will supply the components to. I think the decision will be based majorly on the profitability factor. Whichever industry they find to be more profitable, they will be inclined to supply components to that. The profitability ultimately depends on how much the demand for the product is. Since consumers drive the demand for products, in some ways, consumers are also influencing this decision.

  10. eemom
    February 24, 2011

    I agree, I think decisions will be made based on which market is more profitable and which market long term gain is foreseen.  I have to believe that between laptops, tablets and smartphones, the notebook world will shrink considerably.  Manufacturers have to make some hard decisions and divert inventory to the products that can potentially gain them market share and leadership. 

    While the tablet market will probably enjoy a very fast growth, it will most likely continue to be dominated by Apple.  There is room for 2 or 3 more manufacturers to challenge apple, there is not room for 80 more.

  11. elctrnx_lyf
    February 24, 2011

    Suppliers who are actually making products for any of the high volume products such as Tablets and smartphones have to make a choice when there is orders from many OEM's making laptops, tablets and smartphones. But at the end of day no supplier wants to lose an order so they have to priortise and distribute their components to the OEM's intelligently.

  12. hwong
    February 24, 2011

    Sometimes I wonder, if there are so many demand out there, then why doesn't other entrepreneurs start new companies to help get some businesses. If Apple of other companies have such a tough time trying to make sure the contract manufacturer can supply the products, then why doesn't the manufacturer build more capacity or even subcontract out?

  13. Ashu001
    February 27, 2011

    Barbara,

    Think about it this way,”About long-term relationships, partnerships, visibility, and better forecasting?”

    How many of these things actually matter in the endgame as far as Supplier relationships are concerned???

    The answer is -All of them.

    The more companies focus on all of them,the better companies will be able to leverage their Supply Chain processes to work it to their advantage.It  sure helps if these component manufacturers can tie things up with their end users to make sure things run more smoothly and more efficently.

    Regards

    Ashish.

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