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Do Apple Product Leaks Give the Competition a Leg Up?

By Ashraf Eassa – Apr 19, 2018 at 7:33PM

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Let's analyze this claim.

Bloomberg recently (and rather ironically) published an article containing a memo that Apple (AAPL -2.86%) sent to its employees attempting to discourage them from leaking information about upcoming Apple products to the press.

Here's a snippet from the memo that struck me:

The impact of a leak goes beyond the people who work on a particular project -- it's felt throughout the company. Leaked information about a new product can negatively impact sales of the current model; give rival companies more time to begin on a competitive response; and lead to fewer sales of that new product when it arrives.

While it's obvious that leaks about a new model could lead to lower sales of current models if those leaks point to a compelling generational improvement that people will want to wait for, what's less clear is whether such leaks can "give rival companies more time to begin on a competitive response."

An iPhone X.

Image source: Apple.

Media leaks versus competitive intelligence

Leaks about upcoming iPhones often come from people within Apple's vast supply chain, and if that information is making its way to the press, it's probably already widely known within Apple and among the employees at its various suppliers. By the time you and I are reading about a leak, it's highly likely that Apple's competitors already have a pretty good idea of what Apple is working on.

Apple's competitors, like Apple itself, typically have competitive intelligence teams, whose job is to figure out what directions competing products are likely to go next in a bid to ensure that their own products are competitive. These teams rely on their deep understanding of the strengths and weaknesses of their own company's products as well as competitors' products to try to guess where the competition is heading. 

Moreover, a company like Apple works with many suppliers, some of whom are direct competitors to Apple's smartphone teams. For instance, Apple relies on Sasmung, Apple's biggest rival in the smartphone market, for display technology, memory chips, and, in the past, applications processor fabrication.

Apple also works closely with Sony, another company that competes directly with Apple in the premium smartphone market, to develop the image sensors that power the cameras in its iPhones

Put bluntly, Apple gives key competitors valuable information about its upcoming products. Now, of course, the subsegments that Apple works with for component supplies at these entities are certainly contractually bound not to spill the beans on Apple's proprietary technology, but I would be surprised if that information is kept as secret as Apple hopes that it is.

A way to mitigate that particular dilemma is to continue to bring in-house the development of key components to avoid needing to share key technology details about future products. The latest technology that Apple is expected to vertically integrate is display technology -- a critical differentiator in the world of smartphones.

According to the memo Bloomberg published, Apple said that in 2017 it "caught 29 leakers. 12 of those were arrested. Among those were Apple employees, contractors and some partners in Apple’s supply chain.

The main risk from leaks

Ultimately, the main risk that I see from the leaks that make their way to people like you and me is that they could discourage the average smartphone buyer from buying current products, prompting them to wait for next-generation products.

Even then, though, it's not exactly a secret that Apple puts out newer and better versions of its key products, such as the iPhone, on a predictable annual cadence. If you're the type of person who is going to buy one of Apple's latest iPhones in, say, July or August -- just before the new iPhone is expected -- then you're probably not the kind of person whose purchase decision would be swayed by a leak.

On the flip side, if you're the kind of person who really values Apple's latest innovations, then you're also probably the type of person who bought Apple's latest iPhone as soon as it came out and will buy the next one as soon as it comes out as well.

Apple, of course, should be concerned about leaks, but I think their potential impact to Apple's business is small.

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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