Apple reportedly demands 10% quote cuts from component suppliers in 2Q11

“Apple’s suppliers of components such as PCBs, optical components, battery modules and touch panels are reportedly facing pressure from Apple, which has demanded quote cuts of 10% for the second quarter of 2011, according to a Chinese-language Economic Daily News (EDN) report,” Joseph Tsai reports for DigiTimes.

“Since Apple’s tablet PC shipments are expected to grow 70% sequentially to eight million units in the second quarter, significantly benefiting related upstream component suppliers, Apple has demand its suppliers to provide cuts in return, the paper noted,” Tsai reports.

Read more in the full article here.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

24 Comments

    1. Exactly; relations with contractual suppliers are called that because there are contracts — there is nothing like arbitrary “demands” can happen on this stage; all cuts are already there in the contracts.

      1. Wal-Mart also provided assistance to their suppliers in moving their manufacturing OUT of the USA to China. The incentive for all this is basic economics: Buy cheap, sell cheap, sell sell sell.

        Of course, the problem with this approach is that part of your customer base may well have been the local employees that are now out of a job. Thus the current state of the USA on many levels.

    1. Walmart and others have been doing this for years. As long it is not taken to extremes, I see nothing wrong with taking advantage of economies of scale. If it is taken too far, then the supplier cuts corners to meet the cost targets while staying profitable, and quality suffers. I pay Apple for quality, and that had better not change.

      Apple, take a lesson from what happened to Sony in the mid-1990s and maintain a focus on quality over cost.

      1. “If it is taken too far. . . quality suffers.”

        Major *DING* Factor! The cheapest bid is not necessarily the best quality bid. Apple have been severely burned in the past, as have other computer hardware makers, by crap parts from low bidders. Recall the FAILed bulging and leaking capacitor components from the past decade:

        Capacitor plague

    1. Figure rule of thumb, a vendor usually charges 2.5 times component plus assembly costs for a finished product. A 10% cost reduction represents a 25% increase in gross margin. Apple currently enjoys a 38% gross margin on IPads so a 10% cost reduction from it’s suppliers boosts Apple’s margins on IPads to 47.5%. If Apple did $5B in business in just IPads last quarter a10% reduction represents another $1.25B to the bottom line. It forces suppliers to manufacture more higher quality components which lowers their costs also so they make more money with less waste and pollution and lower energy consumption good all the way around.

  1. Talk about editorializing instead of reporting. Would a similar story about Samsung say that “Samsung was respectfully requesting a 10% cut”?

    Why can’t they just say Apple is negotiating a 10% reduction in component prices? Tired of the spin. No wonder newspapers are losing readership.

    1. It’s hard to find data that hasn’t been ‘spun’ or market-filtered these days. It’s the Marketing-As-Management age. Facts are frustrating. Fiction is fun. :-Q******

      Thus we FAIL.

  2. The cost of computer components are always going down. Especially after production ramps up and bigger volumes are produced. That’s been true for the last 30 years and beyond.

    Remember how much you paid for the original iPod? Don’t even get me started on the Mac 128k.

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