Taiwan Component Makers Refuse to Lower Quotes For iPhone 7 Parts

[NT1440]

Good. Apple can afford to not squeeze their suppliers to ridiculous margins.

I'm an Apple user through and through, but from a Macro-economic level....honestly I think the company is just too damn big and teeters dangerously on the edge of anti-trust statutes in it's dealings with other companies sometimes.

By which I mean, Apple's orders often require companies to completely alter entire production lines for exclusivity to Apple. The problem? Apple can then just go wherever else they want and leave a tooling company holding the bag on a major investment, a specific power chip manufacturer with a production line that is no longer in use, etc. Apple can make or break a company with their investments, but nothing is there to hold them to account if they suddenly decide to move along.

 

[SteveJobs2.0]

Tim is just using his supply chain experience to squeeze out more profit though cost reduction. However, he is about to squeeze all that he can out of his suppliers. What he needs to do is demand greater innovation that will drive greater sales through superior products.

 

[wirefire]

Don't forget that businesses have social responsibility (at least that's what Apple's CEO claims).

Love it! "Social Responsibility" is one of the biggest jokes out there in business today. It is a perspective issue. Do you want to be socially responsible to share holders, Americans, Taiwanese workers, the world in general? It doesn't matter what you do, there is always a perspective where there are winners and losers and anything with winners and losers is "unfair" and "irresponsible" in this day and age. Apple can and should go for the lowest price possible. If the suppliers are willing to give it to Apple and cut employee compensation to get there, that is the suppliers problem, not Apple. Foxconn would exist if Apple fell from the tree, albeit in a much smaller form than it is today.

And on another topic... it is not the US government's responsibility to create the infrastructure for manufacturing in this country. Manufacturing is good work but it is very difficult to perform in the US with all of the government regulation. How is Manufacturing supposed to function if employees receive, 40 hour work week, 2 weeks + paid vacation, employer mandated healthcare (or compensation for HC), Medical leave, Sick days.. ETC. Saying the US needs more manufacturing jobs sounds wonderful but a manufacturing job here in the USA costs a lot. The salary alone here is much higher but when you factor in everything and actually get to the employer cost per hour worked for the employee it is actually much higher. Government subsidizing manufacturing just means that they are paying (in part or full) for their own mandates (like overtime, and healthcare). Why should I as a taxpayer help a company pay for these things when any other kind of company may not get these benefits?

 

[Juicy Box]

With all the recent bad Apple news, and the rising impending doom sentiment of Apple, they come up with a new business plan:

Let increase our margins by pressuring our suppliers to lower costs.



This is a valid business practice, but maybe Apple should focus on why their customers are becoming increasingly frustrated with them and address those issues to keep revenue and profit up. Instead, they risking having to find new suppliers on short notice, risking getting subpar components, or both.

I know, I know.... I am not as business savvy as the leadership at Apple, or maybe I would have a real Ferrari on my avatar picture instead of the poor man's Ferrari.

 

[thisisnotmyname]

So Apple goes to these manufacturers and says - we're ordering less, so we want a greater volume discount. On what planet does that work?

Maybe they've been reading MacRumors members' comments.

In all seriousness though this information is far too vague to understand what is really being asked. Is the "discount" they want against an existing price contract? Did that price contract have year over year discounts already? Are they calculating that discount against "breakage" (an IC pricing contract term, not meaning actual broken items) rates after decreased volumes? Apple could be asking for last year's price but with a 30% volume reduction that could result on paper as a 20% discount against breakage rate (which if the vendors are leaking this to bring pressure against Apple would be a great tactic to make it look like Apple is trying to extort them).

Or Apple may be purely looking at a combination of 16% of iPhone sales going to the lower margin SE (although now that the initial wave of SE buyers is out I suspect that percentage drops by a good amount) and lower volume all around and wants to fight to lower their COGS. We just don't know.

Regardless, Apple can ask, suppliers can say no, Apple can investigate alternate sourcing.

 

[maflynn]

That's always something to consider and I should hope Apple is ensuring the quality of production parts don't suffer as they attempt to get more or equal for less money.

Yes agreed, though I will say squeezing component makers for a reduced profit margin when they themselves refuse to do that, kind of rubs me the wrong way. I can't fully put my finger on why, but it just seems off putting.

I totally understand that its business, nothing personal, but they seem duplicitous in how they act at times.

 

[S.B.G]

Yes agreed, though I will say squeezing component makers for a reduced profit margin when they themselves refuse to do that, kind of rubs me the wrong way. I can't fully put my finger on why, but it just seems off putting.

I totally understand that its business, nothing personal, but they seem duplicitous in how they act at times.

Indeed, I'm sure that's business as usual in an industry. But I think because it's Apple, they get highlighted more than other companies who do the same thing.

 

[DCIFRTHS]

Good on them.

Apple want lower cost components in order to increase / retain their profit margin.

The consumer certainly won't benefit in the way of a lower priced phone.

In fact, we may suffer is quality of the product declines.

 

[maflynn]

But I think because it's Apple, they get highlighted more than other companies who do the same thing.

good point, because its apple the media are focusing more attention on them.

I'm sure of Samsung did the same thing, it wouldn't even generate a ripple in the news media

 

[S.B.G]

good point, because its apple the media are focusing more attention on them.

I'm sure of Samsung did the same thing, it wouldn't even generate a ripple in the news media

Yeah, probably not, but then again I could see Samsung get a blip on the news front from sites like ours... But any other company, not likely.

 

[MikhailT]

We don't exactly know the full scale of what's going on here. A lot of companies are already suffering with lower profits because of a decline in Apple's sales, does that make it Apple's fault? No, the same fault can be placed on the said companies for relying on Apple's sales too heavily. Apple's growth is simply unsustainable and the decline will naturally occur like it does now.

There's a good chance the companies want more money per sale than they did before because they believe Apple won't be able to sustain the same growth in the past and Apple said no, they want less. This is just your common negotiation process, Apple wants less, the other wants more and eventually, they'll compromise because without one or the other, they will lose far more if they don't.

People who keeps saying Apple's too greedy because it has enough money, that's not how it works in the business world, you don't pay more if you don't have to and you especially do not pay more than other companies. Apple's sole mission is to make money for its shareholders, nothing less or more. This is the right thing to do, nothing to do with morality.

Also, please don't fool yourselves into thinking if Apple pay more, the makers would give a raise to their employees, they won't do that automatically. The workers are still screwed either way, it is all about the companies. Could Apple include a clause to increase the worker's salary if they pay more. Yes but would they do it, no, it's not their mission and if they do, folks can lose their jobs because shareholders can in fact rule this out and sue the company for harming the profits like this.

Also, this happens with all companies of all sizes, Apple just happens to be in the public's view right now because of its size and 'trendiness'. Technology world goes into cycles, Apple will decline, Microsoft or Google will take over, and a decade from here, Apple gets back on top and others go down.

 

[thebeans]

Apple's demand that overseas suppliers lower their quotes for iPhone 7 parts and components has been met with resistance from makers, according to Taiwanese website DigiTimes.

Apple is said to have asked downstream part and component suppliers, excluding TSMC and Largan Precision, to reduce their quotes for iPhone 7 devices by as much as 20 percent, even though order volumes for new phones are reportedly 30 percent lower than those placed a year earlier.

Apple is reportedly using the rising handset supply chain in China to force Taiwan-based companies to make their quotes more competitive. However, DigiTimes suggests Apple's policy of squeezing out profits from Taiwan suppliers "makes no sense" because "the quality of products rolled out by Taiwan- and China-based suppliers is standing at different levels".

Whether or not quality is an issue, major downstream suppliers including Advanced Semiconductor Engineering (ASE) and associated companies under the Foxconn Group have told Apple that they cannot accept orders without reasonable profits.

Apple reportedly chose to exclude TSMC and Largan from its demands because the company is finding it hard to find alternatives that offer foundry services or high-end camera modules, respectively.

Meanwhile, ASE has seen its business grow steadily in recent years and optimized its advanced packaging technology by expanding its client base through a merger agreement with fellow company Siliconware Precision Industries (SPIL).

Foxconn Group, for its part, has acquired Japan-based Sharp, which will reportedly keep its production facilities busy, meaning there's no inclination for the electronic manufacturing subcontractor to sacrifice its margins to work for Apple.

Apple accounted for a 17.2 percent share of the global smartphone market in terms of shipment volume, but took as high as 91 percent of the industry's profits in 2015, according to data compiled by Canaccord Genuity.

Apple is expected to reveal the iPhone 7 at an event on September 7, and open up pre-orders on September 9. The specific launch date remains ambiguous, with both September 16 and September 23 mooted as potential options.

Article Link: Taiwan Component Makers Refuse to Lower Quotes For iPhone 7 Parts

Good for them. Greedy Apple bastards. They make an a$$load of profit on each phone.

 

[mbh]

But you can't fault these companies for looking out for their best interests too.

Who is faulting the suppliers? All I see here is the usual complaining about Apple being "greedy".

This is how business works, folks. Apple asks for a certain price and the suppliers push back. They either meet somewhere in the middle or Apple takes its business elsewhere. The only reason this is a news story is because it involves Apple. Any other company and it's just the normal course of business.

 

[simply258]

Cook to Taiwanese Suppliers, "You've recovered your investment on the tooling, moulds, etc that you made since the iPhone 6 and you'll still be using them for 1 more year, so how about reducing your prices now?"

 

[toph2toast]

Apple usually increase the price on numbered model's, i could be wrong and i hope i am. Also wouldn't the dual lens camera for the 7 Plus cost more? hence another reason for a price hike. Apple have always charged more for storage so i can't see them dropping the price, they like their profits to much.

A 16GB iPhone has been $199 on-contract going back to the iPhone 3GS, so they don't "usually increase the price on numbered model's"

One thing they might pull is what they did with the iPad Pro, and force everyone to the higher storage level for an extra $100.

 

[Dave245]

That's contract prices, I'm talking about buying from Apple outright here in the UK, The price of an iPhone has usually increased, not every time but it has.

 

[dampfnudel]

Cook to Taiwanese Suppliers, "You've recovered your investment on the tooling, moulds, etc that you made since the iPhone 6 and you'll still be using them for 1 more year, so how about reducing your prices now?"

Yeah, Apple is like come on you know we won't sell as many because they basically look the same like the two-year-old iPhone 6 so give us a break. We'll make it up next year with the redesigned iPhone.

 

[nt5672]

Yes agreed, though I will say squeezing component makers for a reduced profit margin when they themselves refuse to do that, kind of rubs me the wrong way. I can't fully put my finger on why, but it just seems off putting.

I totally understand that its business, nothing personal, but they seem duplicitous in how they act at times.

Its really is not. Part of being in business is to push where you can push and see what you can get. Apple suppliers have a choice, either meet Apple's demands or lose the account. Apple has a choice, either accept that suppliers can't meet demands and change suppliers or don't. That is free enterprise. No one is forced or can force anyone. It is not good or bad in itself. It just is the real world.

What makes it more expensive to manufacture in the US is not regulations in general, it is the hate and unreasonableness of special interest groups and the ridiculous rules and laws they get passed. No manufacturer that I knew (and I worked full time advising manufacturers at one time) minded treating their people better. The problem was the EEOC stepping in on trumped up charges, the EPA being more concerned about an underweight mouse than the lives and families of 1000's of workers, government laws preventing the discipline and firing of poor workers, the fact that unions can be forced on a company, needed or not, race / gender equality in the workforce, regardless of qualifications and impact, and race baiting /public war on corporations. Today almost 30% of the administrative cost is in HR. Not just the department, but every middle manager and supervisor that spends more time on HR related paperwork than running the business.

It is the government attitude that we have to punish someone right now, instead of working through issues with maybe concessions on both sides, that causes the problem. In effect, it is the unfriendly environment that causes the costs, which now are not predictable. You never know if the south Asian fruit fly will cause your business to be shut down with no recourse what-so-ever, or some new tax or use fee gets created that you cannot in the short run pass on the customers, or that some new tax will not be created retroactively, or that your competitor will use political donations (bribes) to get your business shut down. The absence, for the most part, of these things used to be a real benefit of manufacturing in the US (they used to call it a level paying field), but now we are no more different than manufacturing in any third world country, except the labor costs are lower and the bribes have value in the third world.

 

[5105973]

Love it! "Social Responsibility" is one of the biggest jokes out there in business today. It is a perspective issue. Do you want to be socially responsible to share holders, Americans, Taiwanese workers, the world in general? It doesn't matter what you do, there is always a perspective where there are winners and losers and anything with winners and losers is "unfair" and "irresponsible" in this day and age. Apple can and should go for the lowest price possible. If the suppliers are willing to give it to Apple and cut employee compensation to get there, that is the suppliers problem, not Apple. Foxconn would exist if Apple fell from the tree, albeit in a much smaller form than it is today.

And on another topic... it is not the US government's responsibility to create the infrastructure for manufacturing in this country. Manufacturing is good work but it is very difficult to perform in the US with all of the government regulation. How is Manufacturing supposed to function if employees receive, 40 hour work week, 2 weeks + paid vacation, employer mandated healthcare (or compensation for HC), Medical leave, Sick days.. ETC. Saying the US needs more manufacturing jobs sounds wonderful but a manufacturing job here in the USA costs a lot. The salary alone here is much higher but when you factor in everything and actually get to the employer cost per hour worked for the employee it is actually much higher. Government subsidizing manufacturing just means that they are paying (in part or full) for their own mandates (like overtime, and healthcare). Why should I as a taxpayer help a company pay for these things when any other kind of company may not get these benefits?

I'd rather pay for these things than pay for ever increasing numbers of people wanting work but not finding it and creating more and more people sitting on their butts doing nothing and getting more drugged out and creating more neglected and abused kids.

And it's not just subsidizing manufacturing but infrastructure, which benefits everyone. I live in a wealthy county in an area with high employment and still our roads are crap.

Apple hides billions of dollars in Ireland. Apple invests billions in Asia and India. We have been reading for months now what a pain in the butt the foreign governments have been to work with. I can't believe Tim couldn't have worked better with the US federal, state and local governments to make the US factory more efficient. Just start with that one factory.

 

[NT1440]

That's contract prices, I'm talking about buying from Apple outright here in the UK, The price of an iPhone has usually increased, not every time but it has.

Has the price increased in denomination, or has it increased to stay consistent with the buying power of that currency?

$1 is worth less in buying power this year than it was last. So I'm asking if there has been an actual price hike, or has the currency amount been upped to reflect buying power changes?

 

[Dave245]

Has the price increased in denomination, or has it increased to stay consistent with the buying power of that currency?

$1 is worth less in buying power this year than it was last. So I'm asking if there has been an actual price hike, or has the currency amount been upped to reflect buying power changes?

It's usually by around £50, so maybe it's inflation as well as currency. Not sure about contracts because I always by my phones outright and put a SIM card in the, I've always thought that taking out a contract at around £40 a month, for 24 months costs more than it does to just buy the phone outright.

 

[Stella]

In fact, we may suffer is quality of the product declines.

That is Apple's problem.

Apple start pushing out poor quality products, consumer will buy from elsewhere.

Maybe apple should start cutting costs themselves? Or reduce their profit margins.

 

[Juicy Box]

Maybe apple should start cutting costs themselves?

Maybe cut back on the rumored R&D spending. When in comes to R&D, they are starting to sound like Kodak 25 years ago.

 

[ssgbryan]

Love it! "Social Responsibility" is one of the biggest jokes out there in business today. It is a perspective issue. Do you want to be socially responsible to share holders, Americans, Taiwanese workers, the world in general? It doesn't matter what you do, there is always a perspective where there are winners and losers and anything with winners and losers is "unfair" and "irresponsible" in this day and age. Apple can and should go for the lowest price possible. If the suppliers are willing to give it to Apple and cut employee compensation to get there, that is the suppliers problem, not Apple. Foxconn would exist if Apple fell from the tree, albeit in a much smaller form than it is today.

And on another topic... it is not the US government's responsibility to create the infrastructure for manufacturing in this country. Manufacturing is good work but it is very difficult to perform in the US with all of the government regulation. How is Manufacturing supposed to function if employees receive, 40 hour work week, 2 weeks + paid vacation, employer mandated healthcare (or compensation for HC), Medical leave, Sick days.. ETC. Saying the US needs more manufacturing jobs sounds wonderful but a manufacturing job here in the USA costs a lot. The salary alone here is much higher but when you factor in everything and actually get to the employer cost per hour worked for the employee it is actually much higher. Government subsidizing manufacturing just means that they are paying (in part or full) for their own mandates (like overtime, and healthcare). Why should I as a taxpayer help a company pay for these things when any other kind of company may not get these benefits?

Erhm, about that.

You might want to go and read the US Constitution sometime. Hint - it consists of more than a clause in the 2nd amendment. It is pretty obvious that you haven't actually studied US history.

You might want to get out of your libertarian bubble and actually take a look at US economic history - there is so much fail in your post, I don't know where to begin.

Almost every last bit of infrastructure in the US was funded by the government. From railroads to electrical generation to roads, airports, sewage systems - need I go on?

Ever hear of railroads? Every single one of them built in the 19th century was financially backed by the US government.

Communications? Every single one of them was financially backed by the US government.

 

[NT1440]

Maybe cut back on the rumored R&D spending. When in comes to R&D, they are starting to sound like Kodak 25 years ago.

Make a calendar appointment for one year from now and tell me the R&D spending wasn't worth it.