Apple Set to Tighten Grip on MacBook Supply Chain and Cut Contractor Profits

[MacRumors]

Apple is set to tighten its control of its MacBook supply chain by directly negotiating prices with third-party suppliers of non-key parts such as screws and plastics, which are required by contract suppliers to produce major components.

According to a new report by DigiTimes, industry sources say the move by Apple will significantly reduce profit margins of its contracted supply partners, however Apple has neither confirmed nor denied the move.

The Taiwan-based website's sources said that this will be the first time Apple has ever interfered with the procurement of non-crucial materials and parts by its contracted key component producers, who manufacture the processors, panels, batteries, chassis, and heat dissipation modules in Apple MacBooks.

Taiwan contracted supply partners of MacBooks were reportedly told of the new policy during a meeting they attended at Apple's headquarters in Cupertino.

If enforced in time for MacBook models to be released this year, the policy could erase 10 to 15 percent of profits currently made by contracted producers from the purchases of materials, leaving them with only the contracted MacBook manufacturing fees.

Apple has reportedly decided to expand its centralized procurement coverage to include upstream materials such as copper and cobalt, and non-key parts and components from third-party suppliers. The electronics giant will reportedly directly set the prices and order volumes for such materials and minor parts and components, instead of only screening the name lists of qualified third-party suppliers proposed by contracted supply chain partners and inspecting their supply quality and shipment schedules.

The same industry sources predict that when the policy goes into effect, contracted supply chain players will have to boost their self-sufficiency for components or look to other markets like cloud, AI and automotive electronics applications to claw back profitability.

Apart from typical MacBook refreshes, former KGI Securities analyst Ming-Chi Kuo believes Apple is working on a "more affordable MacBook Air" set to be released at some point in 2018.

We've heard a similar rumor from DigiTimes, which says Apple is working on a new entry-level 13-inch MacBook in the second half of 2018, which would serve as a replacement for the MacBook Air, but we don't expect it to surface during this year's WWDC.

There are no details on what features an updated MacBook Air could include, but if Apple is aiming to keep costs down, it could receive minimal updates. The MacBook Air remains outdated and continues to use a processor from 2014, so an updated version could include a new processor and new graphics. Thunderbolt 3 could also be added, and it's possible Apple will update the display.

Article Link: Apple Set to Tighten Grip on MacBook Supply Chain and Cut Contractor Profits

 

[macpeach55]

Bet it doesn't bring the price of buying the MacBooks down though, even though they will claim that it allowed them to offer the new Models at a great price

 

[apolloa]

Well considering Apple is refusing to confirm or deny this, I doubt very much if this is true they will pass any savings on and instead just make more profit themselves..

 

[FelixDerKater]

Higher margins, not lower prices.

 

[RightMACatU]

Screw suppliers will get screwed

 

[prasand]

I find myself a bit torn on this topic. On one hand I understand the need to bring down expenses and see it as justified. The 10-15% hit on their contracted producers reflects that they were significantly over-charging and Apple is putting a stop to their extra money party. Justified.

But on the other hand, I’m like “really though?”

 

[gim]

More penny-pinching! Good job, Tim!

 

[itsmilo]

Bet it doesn't bring the price of buying the MacBooks down though, even though they will claim that it allowed them to offer the new Models at a great price

Apple is not hear for the money, they price by the experience and quality they provide to their customers. Okay!

At least that what Tim Cook wants us to believe

 

[Lone Deranger]

Maybe they can source cheaper screws from the same supplier that provided them for the iMac Pro VESA mount kit. I heard they do a real good price on them.

/s

 

[Devie]

I find myself a bit torn on this topic. On one hand I understand the need to bring down expenses and see it as justified. The 10-15% hit on their contracted producers reflects that they were significantly over-charging and Apple is putting a stop to their extra money party. Justified.

But on the other hand, I’m like “really though?”

10-15% on a part worth cents is nothing. If this is true it’s insane.

 

[FFR]

Well considering Apple is refusing to confirm or deny this, I doubt very much if this is true they will pass any savings on and instead just make more profit themselves..

Why does this bother you so much

 

[Mirice99]

I find myself a bit torn on this topic. On one hand I understand the need to bring down expenses and see it as justified. The 10-15% hit on their contracted producers reflects that they were significantly over-charging and Apple is putting a stop to their extra money party. Justified.

But on the other hand, I’m like “really though?”

So if 10-15% is “significantly overcharging” what is apples 30% take on App sales?

 

[Yvan256]

All I want is an updated MacBook Air with a newer CPU, a 16GB RAM option, a better display and the same ports and keyboard. Maybe replace the magsafe with a USB-C port but keep the other USB-A ports. And a smaller bezel would be nice.

And offering two sizes again would be great to offer an even lower-cost option.

 

[Fiachers]

Why can't we ever have a 15 inch consumer-oriented MacBook? Like a 15 inch version of the MacBook (2015)? Is there some sort of good reason why this is so and has always been so?

 

[brentsg]

It's every manufacturer's duty to reduce supply cost as much as possible.

So if 10-15% is “significantly overcharging” what is apples 30% take on App sales?

That's not what the article says. The 10-15% is the reduction, not the current profit level for the suppliers.

 

[jlc1978]

10-15% on a part worth cents is nothing. If this is true it’s insane.

Once you start buying multiple millions it adds up. It won't impact the price of a machine but in aggregate adds to the bottom line. Given Cook's background I am not surprised he is tweeking the supply chain wherever possible.

A secondary benefit for Apple is to build a deeper supply chain should they decide to do more manufacturing in house.

 

[Wanted797]

I find myself a bit torn on this topic. On one hand I understand the need to bring down expenses and see it as justified. The 10-15% hit on their contracted producers reflects that they were significantly over-charging and Apple is putting a stop to their extra money party. Justified.

But on the other hand, I’m like “really though?”

I read the article as a bit of a TLDR. “Apple will try get a better deal on non-key parts.”

 

[alexgowers]

Snazzy Labs written all over it. I think it’s a quality issue

 

[Fender2112]

There are builders in my area who do something similar to this. They negotiate pricing for certain products. Then require the subcontract to furnish the the specified product. I don't have a problem with this as long as everyone can make a profit.

Two things will happen:
1. The cost savings is used to increase profits. To expect the savings to be passed on to the consumer is just naive.
2. The subcontractors and vendors will find ways to maintain their own profits. If not, they will drop Apple or close their doors. No matter how big of a customer Apple is, if the supplier is not making a profit, they will leave.

As I tell my people, "I can stay home and not make money." There are times when doing less work is actually more profitable.

 

[neuropsychguy]

I read the article as a bit of a TLDR. “Apple will try get a better deal on non-key parts.”

People seem to think this is something bad.

 

[Yvan256]

People seem to think this is something bad.

It is when something as basic as screws are prone to breaking. What's the point of saving 10% on four screws that hold up a 5000$ computer?

 

[69Mustang]

It's every manufacturer's duty to reduce supply cost as much as possible.

No it's not. It's every manufacturer's duty to maintain a healthy supply chain. When you race to the bottom penny pinching your suppliers, they in turn are forced to do the same. Eventually, what you get are subpar components fitted into supbar products charged at a premium price. I don't think any customer wants that. Especially since history tells us that there'd be no benefit to the customer in the form of reduced pricing.

That's not what the article says. The 10-15% is the reduction, not the current profit level for the suppliers.

The article also says:

If enforced in time for MacBook models to be released this year, the policy could erase 10 to 15 percent of profits currently made by contracted producers from the purchases of materials, leaving them with only the contracted MacBook manufacturing fees.

What is not known is the overall profit margin. Were they getting 35% margins + manufacturing fees? Were they getting 10-15% margins + manufacturing fees? According to the info provided, they were getting 10-15% margins + fee. Going forward it would only be the fees. How much are the fees?

 

[prasand]

10-15% on a part worth cents is nothing. If this is true it’s insane.

It's not 10-15% of the cost of screws. It's 10-15% of their total profit on the project. There is no reason why an item such as screws, which less than 1% the size of the device's manufacturing and complexity, should be able to generate 15% of a companies' profit.

So if 10-15% is “significantly overcharging” what is apples 30% take on App sales?

10-15% of the profit on a multi-million dollar project, which is big enough of a hit that the companies will need to find new business ... is not the same as 30% of a 99 cent app.

As an app developer I perceive Apple's fees to be justified. Considering the sheer number of servers I have, which I am required to pay a monthly rent on (so to speak). I know that the utilization of resources comes at an expense, which I willingly pay. If Apple charged a monthly rent based on the load, they'd be completely justified. However, they don't. Instead they are giving people the opportunity to profit off things they might not have been able to afford hosting / advertising themselves otherwise. That's more like a partnership than anything, which in that perspective would entitle them to an even greater percentage.

 

[macduke]

They need to find a better supplier of keyboard key mechanisms, lol.

 

[DNichter]

Makes no difference to me ultimately. Apple will do what is best for their business.