New iPod Touch Models and Chinese iPhone Launch Constrain Worldwide Flash Memory Supplies

How many 3G ipt will be sold during the holiday season.. I'm guessing around 2 millions

I'm wondering what kind of hardball Apple is playing with suppliers. "Either make us top-priority on NAND shipments, or we drop you entirely. You can't afford to lose our business."

there is a typo

will halve???

or is it HAVE????????

joeyneedshelp said:

there is a typo

will halve???

or is it HAVE????????

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I think it's correct, Samsung have told Taiwanese customers it's halving its supply to them, the rest is going to Apple.

whooleytoo said:

I'm wondering what kind of hardball Apple is playing with suppliers. "Either make us top-priority on NAND shipments, or we drop you entirely. You can't afford to lose our business."

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The problem with quick blog posts like this is that there is no room for context.

In fact, apple has pre-paid in excess of a billion dollars to NAND flash memory suppliers, which if you know anything about business is hugely beneficial to the cash flow of those suppliers, many of whom run on razor thin margins. When you earn minimum wage, you'd rather not wonder if your employer will give you your paycheck on Friday as promised -- Apple eliminated that risk.

An article for further reading: http://www.iphonestalk.com/gone-in-a-flash-apple-pays-for-large-amounts-of-flash-memory-5579/

Google will also provide additional context, if you're interested.

To summarize, this is a case of Apple leveraging their amazing cash position by offering a carrot to suppliers rather than threatening them with the stick.

Alan Falcon

Alan / Falcon said:

In fact, apple has pre-paid in excess of a billion dollars to NAND flash memory suppliers, which if you know anything about business is hugely beneficial to the cash flow of those suppliers, many of whom run on razor thin margins. When you earn minimum wage, you'd rather not wonder if your employer will give you your paycheck on Friday as promised -- Apple eliminated that risk.

An article for further reading: http://www.iphonestalk.com/gone-in-a-flash-apple-pays-for-large-amounts-of-flash-memory-5579/

Google will also provide additional context, if you're interested.

To summarize, this is a case of Apple leveraging their amazing cash position by offering a carrot to suppliers rather than threatening them with the stick.

Alan Falcon

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Exactly. The $1B is just this season. They have done that or a significant fraction for the past few years as well. So those suppliers love this customer.

The massive ramp of Chinese iPhones may have to focus on 4 and 8 gig capacities to not only fit in the lower price model there but also to simply meet unit demand. Not many people really need more than 8 gig on their iPhone if they synch it more than twice a week.

Apple may need to go to wireless syncing as a user option as well.

Rocketman

Alan / Falcon said:

To summarize, this is a case of Apple leveraging their amazing cash position by offering a carrot to suppliers rather than threatening them with the stick.

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Tomato/tomato. The difference between the two is a matter of perspective. What you wrote is consistent with my point, Apple is in a position to demand being at the front of the queue, and I wondered to what extent they do.

Only one thing to disagree with here.

Rocketman said:

...... Not many people really need more than 8 gig on their iPhone if they synch it more than twice a week.

Apple may need to go to wireless syncing as a user option as well.

Rocketman

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For anybody that has owned an iPhone or Touch for awhile they will have learned that 8GB is not enough. Not even close if you are intent on using more than a few apps or some of the GPS software out there.

Oh I really don't know what syncing has to do with it. Normally syncing causes a loss of flash space.


Dave

Wonder it has just been explained to you.

whooleytoo said:

....What you wrote is consistent with my point, Apple is in a position to demand being at the front of the queue, and I wondered to what extent they do.

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Wonder, do you not keep track of the news or what people have written here? Apple pays up front with CASH some quarters a half Billion dollars at a time. If you don't understand that such payments secure your supplies then you don't understand business.

Think of it this way you walk into a luxury car dealer with a suitcase full of cash, would you not expect awfully good service if you announced your intention to spend that money in the establishment.

Dave

wizard said:

Wonder, do you not keep track of the news or what people have written here? Apple pays up front with CASH some quarters a half Billion dollars at a time. If you don't understand that such payments secure your supplies then you don't understand business.

Think of it this way you walk into a luxury car dealer with a suitcase full of cash, would you not expect awfully good service if you announced your intention to spend that money in the establishment.

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Apple is getting VERY good service if other customers' shipments are being halved in order to fulfil Apple's orders.

As I stated in my first post, they can't afford to lose Apple's business. The only question for me is, did they voluntarily cut back supply to other customers; or did Apple pressure them to do so.

whooleytoo said:

Apple is getting VERY good service if other customers' shipments are being halved in order to fulfil Apple's orders.

As I stated in my first post, they can't afford to lose Apple's business. The only question for me is, did they voluntarily cut back supply to other customers; or did Apple pressure them to do so.

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You are still not reading what other people are writing. Apple did not need to pressure them into doing anything. After the supplier entered into a contract for a specified delivery schedule and accepted prepayment for the contract, they were obligated to fulfill the agreement by whatever means necessary. It was up to the supplier to figure out how to meet the capacity required by Apple.

This is how business works. When you prepay a supplier, you get priority.

whooleytoo said:

I'm wondering what kind of hardball Apple is playing with suppliers. "Either make us top-priority on NAND shipments, or we drop you entirely. You can't afford to lose our business."

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Um... I think that would be backwards. Obviously, they can completely afford to lose Apple's business.

Apple is paying more to get delivery. The free market at work! Huzzah, we're saveD!

I think that this is HILARIOUS!!! Apple, a lone computer company is lowering the WHOLE ENTIRE WORLDS flash memory.

whooleytoo said:

As I stated in my first post, they can't afford to lose Apple's business. The only question for me is, did they voluntarily cut back supply to other customers; or did Apple pressure them to do so.

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Some of the articles I have read in industry magazines indicate the Apple advance purchases have substantially INCREASED overall supplies of NAND, and particularly that of larger sizes. Further it slightly shifts delivery of larger sizes forward a bit to dates earlier than originally planned. My understanding in simple terms is the "early access and guaranteed minimums" aspect of the contract is in exchange for a non-recurring R&D fee that is between 5-10% of the entire contract. On the back end they get favorable credit terms on items actually delivered. So they pay after they get it. The $500 million is a letter of credit and the R&D fee is fronted.

That is the impression I get. They have done this with 3 suppliers I know of and suspect a similar but smaller scale arrangement exists with 2 others.

The problem that causes the shortages is sales exceeding world industry capacity AFTER the R&D investment, and advances of Billions of dollars of letters of credit, translating to physical payments on delivery.

You crazy people actually think you NEED a 16gb iPhone and a 32gb iPod Touch! You maniacs!

You are pissing off the other 15-20% of the market who only buy NAND as they need it when producing units and are not in a position to advance millions and billions of dollars. Stop annoying them. Buy Zunes!

Rocketman

aristotle said:

You are still not reading what other people are writing. Apple did not need to pressure them into doing anything. After the supplier entered into a contract for a specified delivery schedule and accepted prepayment for the contract, they were obligated to fulfill the agreement by whatever means necessary. It was up to the supplier to figure out how to meet the capacity required by Apple.

This is how business works. When you prepay a supplier, you get priority.

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On the contrary, I've read every message.

But what I don't know - and no post here has stated - are the terms of Apple's contract with chip suppliers. I presumed a schedule of delivery is involved, but how long is it for, and how many chips? Are the chip companies on schedule? Is the contract fixed, or are there options for more/less? Has Apple order more chips above and beyond that schedule, to keep up with its increasing demand? Has any other company made a similar prepayment? If so, what happens if the chip manufacturer can't meet both demands? Etc..etc..

Amdahl said:

Um... I think that would be backwards. Obviously, they can completely afford to lose Apple's business.

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Ha! Good point!

Though I think chip shortages/gluts are a short-term phenomenon. Given Apple's massive market share (in music players and smartphones), and their steady, long-term demand, no company would want to lose their business.

Rocketman said:

Some of the articles I have read in industry magazines indicate the Apple advance purchases have substantially INCREASED overall supplies of NAND, and particularly that of larger sizes. Further it slightly shifts delivery of larger sizes forward a bit to dates earlier than originally planned. My understanding in simple terms is the "early access and guaranteed minimums" aspect of the contract is in exchange for a non-recurring R&D fee that is between 5-10% of the entire contract. On the back end they get favorable credit terms on items actually delivered. So they pay after they get it. The $500B is a letter of credit and the R&D fee is fronted.

Click to expand...

Very interesting, thanks!

Rocketman said:

You are pissing off the other 15-20% of the market who only buy NAND as they need it when producing units and are not in a position to advance millions and billions of dollars. Stop annoying them. Buy Zunes!

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That's it, I'm going back to my 15GB hard disk iPod. One giant leap for a man, one tiny step for the economy!

whooleytoo said:

If so, what happens if the chip manufacturer can't meet both demands? Etc..etc..

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Lawyers would get paid.

...and their steady, long-term demand, no company would want to lose their business.

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Except Apple is fickle, and even in a commodity business, it isn't good to let one customer become your ONLY customer.

joeyneedshelp said:

there is a typo

will halve???

or is it HAVE????????

Click to expand...

Confession: I'm a linguist. Final-consonant voicing (in this case, /f/ to /v/) is a phonogical method sometimes used in English to derive a verb from a noun (house -> house, grief -> grieve, etc.). Anyway...

"Have" makes this story quite uninteresting ("it's September, here's your shipment"), where as "halve" is what makes it news: "sorry, we can only give you 50% of what we used to because of Apple".

richardtj said:

A little suprising given the number of knock off iphones comming out of china! Suspect that it's the legitimate sources for memory that are drying up. However, Apple must being doing a stonking trade in ipods for that to happen. Am I missing something here though? Haven't heard of a 64 gig ipod touch yet! Could be a pre-christmas launch??

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http://store.apple.com/us/browse/home/shop_ipod/family/ipod_touch?mco=Nzk2MDUxNQ

richardtj said:

A little suprising given the number of knock off iphones comming out of china! Suspect that it's the legitimate sources for memory that are drying up. However, Apple must being doing a stonking trade in ipods for that to happen. Am I missing something here though? Haven't heard of a 64 gig ipod touch yet! Could be a pre-christmas launch??

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There's a link to the release of the new iPod Touchs (it isn't Touches or Touch's) IN THE ORIGNAL POST!

Definitely basic comprehension fail.

richardtj said:

A little suprising given the number of knock off iphones comming out of china! Suspect that it's the legitimate sources for memory that are drying up. However, Apple must being doing a stonking trade in ipods for that to happen. Am I missing something here though? Haven't heard of a 64 gig ipod touch yet! Could be a pre-christmas launch??

Click to expand...

LOL