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Explaining The Interconnected Fates Of The World's Most Profitable Tech Firms

In a world that’s been described as dog-eat-dog, where “survival of the fittest” and like cliches abound, business competition is fierce. With limited resources and limited customers, some companies, like the people running them, have found strategic treaties and partnerships critical to survival.

The symbiotic arrangements do not often amount to interdependence, although in some cases, a breakup serves to the detriment of one or both partners.

Commensalism

In nature, relationships benefiting one party while proving to have little effect on the other are categorized as “commensalistic.”

Such is often the model seen in Apple Inc. AAPL 1.12%’s partnerships, wherein the tech giant enjoys disproportionate relationships with its largely reliant suppliers. For the most part, Apple has other sourcing options, and if it eyes a more attractive partner, the dependent contractor suffers.

Imagination Technologies found itself discarded this year, after having relied on Apple for half its revenue. Before that, Apple abandoned Portal Player, Sigmatel, CSR and Wolfson.

Apple’s present partners know they must prove themselves critical to operations or at least attractively convenient to have around. The firm’s current imbalanced relationships include circuit-board maker Multi-Fineline Electronix, which TheStreet reported relies on Apple for 75 percent of its revenue; chipmaker Cirrus Logic, Inc. CRUS 0.65%(66 percent); LCD supplier Japan Display (54 percent); and semiconductor supporter Aehr Test Systems AEHR 0.94% (47 percent).

Mutualism

Some corporate relationships are built on equality, such as that between ostensible rivals Apple and Samsung Electronics OTCSSNLF.

Apple memory chip orders constitute less than 5 percent of Samsung’s operating profits, according to Credit Suisse, and Samsung’s semiconductor business accounts for 60 percent of its operating profit, according to Morgan Stanley. With other chipmakers in the market, Apple also has other supply options.

However, Samsung largely controls the mobile OLED market, and The Wall Street Journal reported that alternative suppliers will not likely emerge until late 2018. At the same time, Samsung’s operating profits, which for the first time surpassed Apple’s to make the tech firm the most profitable in the world, may depend on the iPhone-maker’s popularity and resulting influence in driving chip prices.

The WSJ characterized the partnership as one of mutual benefit.

© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.


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