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What can make winning a contract with a giant like Apple surprisingly dangerous for a small supplier?

  • Demand becomes too predictable 107 votes (26.4%)
  • Its technology becomes harder to patent 72 votes (17.8%)
  • The supplier attracts too many customers 75 votes (18.5%)
  • Apple can demand lower prices over time 151 votes (37.3%)

Total votes: 405

Answer: Apple can demand lower prices over time

Explanation: Landing an Apple contract can transform a small supplier by suddenly giving it access to enormous volumes. But that opportunity comes with a catch: Apple is a hugely powerful customer with considerable bargaining power.

If a supplier becomes heavily dependent on Apple, it can become difficult to resist demands for lower prices or tougher terms. The more Apple accounts for its sales, the more painful losing that business would be.

That makes the Cirrus Logic example particularly interesting. The article says Apple now accounts for roughly 91% of Cirrus’s net sales. That relationship helped fuel extraordinary growth — but it also illustrates an important investing lesson: a customer can be both your greatest opportunity and your greatest risk.