Apple squeezes suppliers to provide components at lower cost

“Each year’s iPhone has to satisfy consumer demand and maintain Apple’s income and profit,” Ewan Spence writes for Forbes. “Changes such as finally increasing the storage in the upcoming iPhone may be driven by market conditions and aggressive moves by the competition, but it also lowers the profit margin on each handset.”

“That’s why the claims that Apple is squeezing its suppliers to provide components at lower cost for this September’s smartphone not only ring true, but also highlight Apple’s ability to extract every drop of profit out of the iPhone ecosystem,” Spence writes. “Which in turn allows it to claim the lion’s share of the profits in the smartphone world.”

“There are reports that a number of existing component suppliers are having to lower quotes to Apple to compete with other companies looking to get in on the action,” Spence writes. “It naturally makes good business sense for Apple to play these two attitudes against each other. It creates competition, it drives down prices, and it forces the bidding companies to provide more innovative solutions to Apple in the hopes of being attractive enough to get, or keep, Cupertino’s business. The iPhone’s history has many instances of Apple playing two suppliers off against each other. The ultimate winner in all of this is Apple.”

Read more in the full article here.

MacDailyNews Take: Competition. It’s a beautiful thing.

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    1. It doesn’t work like that. Apple doesn’t vaguely say that it wants 100 million components, it specifies in great detail exactly what standards and tolerances those components have to meet and will check them for compliance throughout the duration of the contract.

      It doesn’t matter who makes them for Apple, they will still have to fully meet the standard that Apple requires.

      Remember there was recently an issue where Samsung chips were a little more power hungry than TSMC chips? Both met Apple’s standard, but as it happens, the TSMC ones exceeded that standard when it came to power consumption. For all we know, the Samsung chips could have exceeded Apple’s spec in another way and TSMC’s chips didn’t, but all we need to know is that the chips, from both suppliers fully complied with Apple’s specification.

      1. KCJ was providing a general warning against chasing profits at the expense of quality, employees, and other factors, alanaudio. He was warning against the Walmart approach where the suppliers are pressured to trim costs every year until the stone has no blood left inside.

        As long as Apple continues to focus on quality and balances low component costs and profits with the other important factors, everything should be fine. If Apple loses its was and begins chasing profit margins through expense cutting and throws the majority of the burden on the backs of suppliers, then quality will suffer.

    1. Wrong. The Mac Mini and now the iPhone SE are direct responses to Android competition. The former is about $250 and the latter is $399. And rumors have it that there will be 3 iPhone 7 models introduced this fall: an “SE” type that will be $399 and a “Pro” (formerly Plus) model that will be $799 with the base model being $599 as usual.

      1. I don’t see much sign of high end Android phones with small screens. Recent Android phones tend to be somewhere between pretty big and absolutely massive. Apple is going against that trend by offering a smaller iPhone which is still fully featured. The only small screen Android phones I see are entry-level stripped down phones.

        I would expect smaller and better specced Android phones to start appearing as a direct response to Apple’s iPhone SE, not the other way around.

        1. I don’t know what you’re talking about. The iPhone SE is old hardware that has been discounted because it in many objective ways it is no longer competitive with fully featured smartphones from Apple or its competitors. Just because Apple doesn’t offer a full range of phones and the competition does, doesn’t mean that old iPhone designs are still fresh. Everything about the iPhone SE is 1.5+ years behind current tech in Apple’s own phones.

          The selling feature of the SE is the price, something Apple had to address if it wanted to have a prayer of staying relevant in emerging markets.

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