Apple's (NASDAQ:AAPL) position as tech kingmaker is beyond dispute. Thanks to the immense popularity of its cadre of iDevices, as well as its generally forward-thinking approach to products, Apple's product decisions influence other firms ranging from industry powers like Samsung to tiny start-ups around the world.
Nowhere is Apple's corporate clout more evident than Apple's relationship with its suppliers, who can see their businesses transformed overnight by Apple's favor or scorn. And with the recent release of the Apple Watch, investors have been eagerly waiting to see which companies might benefit from Apple's latest major product. Let's take a look.
In the past several weeks, a number of teardown services have dissected the Apple Watch in hopes of identifying the winners supplying parts.
- One of the best-known names to land in the Apple Watch is Broadcom (UNKNOWN:BRCM.DL), whose BCM43342 powers the Apple Watch's Wi-Fi, Bluetooth, NFC, and FM radio transmission capabilities. As my Foolish colleague Ashraf Eassa noted, Broadcom's BCM43342 appears to enjoy faster wireless throughput than the BCM4334 found in the iPhone 5s, despite combining the other above functionalities all on a single die.
- Powering the memory slots are Toshiba and Micron Technology (NASDAQ:MU), which provide the NAND flash memory and DRAM storage systems, respectively, for the Apple Watch. Especially considering their absence from other Apple devices like the iPhone 6, this is a nice win for both Toshiba and Micron.
- As we should have expected, Apple veteran supplier NXP Semiconductors (NASDAQ:NXPI) was chosen, once again, to provide the NFC controller spot in the Apple Watch sport. NXP Semiconductors currently holds this same spot in both the iPhone 6 and iPad Air 2. NXP Semiconductors investors should certainly enjoy seeing NXP extend its powerful placement within Apple's device ecosystem. Nothing especially surprising here, but a nice win for NXP Semi shareholders either way.
- As rumors of its possible placement in upcoming Apple devices have swirled, Analog Devices (NASDAQ:ADI) landed the touch controller placement in the Apple Watch. This could be just the beginning, though. Those rumors claimed that Analog Devices had secured a deal to provide touch controller functionality in upcoming iPhones and iPads. We've seen Apple port hit technologies from one device into other product lines in the past -- think TouchID -- and it certainly makes sense that Apple could look to use ForceTouch as a "hallmark" feature as a means of differentiating next year's iPhones, which likely won't receive a form factor upgrade. You have to keep people's interest somehow, and Analog Devices could be the right technology at the right time.
Other winners inside the Apple Watch include names like ST Microelectronics and Integrated Device Technology. However, as the dust settles on the Apple Watch analysis, there's one company that clearly won the day with this next-gen smartwatch: Apple itself.
The biggest winner of all
With many analysts expecting Apple Watch shipments to extend beyond 10 million this year, the suppliers above each stand to benefit to varying degrees. However, unsurprisingly, these same teardown reports also show Apple itself will be, by far, the biggest beneficiary of the Watch's rollout.
Recently, research firm IHS estimated the 38mm Apple Watch Sport costs a total of only $83.70 to manufacture and assemble. Contrast that minuscule number to the Apple Watch Sport's introductory price of $349, and it doesn't take much to get a sense that Apple will mint money, once again, with the Watch.
It's tempting to simply say that, because of this, the Apple Watch enjoys gross margins of 76%. However, other key costs, like warranty and shipping, also factor into gross margin calculations, so the Apple Watch's gross margins will almost assuredly end up lower than that 76%.
But for context, this compares quite favorably to other entry-level Apple products. The 16GB iPhone 6 and 16GB Wi-Fi-only iPad Air 2 have estimated gross margins of around 70% and 45%, respectively. While investors shouldn't let these seemingly lofty margin estimates get to their heads, it appears Apple has created another profit center with its Watch.