A new report/commentary this morning from Taiwan claims that Apple has met resistance from makers in Taiwan's supply chain to lower their quotes for parts and components for iPhone 7 devices, a move which aims to force Apple to discontinue its established policy of constantly squeezing profits from Taiwan suppliers.
The commentary noted that "Apple only accounted for a 17.2% share of the global smartphone market in terms of shipment volume, but took as high as 91% of the industry's profits in 2015, according to data compiled by Canaccord Genuity." Under that light, the Taiwanese supply chain is saying that it's about time for Apple to amend its purchasing policy. It appears that Apple no longer has the market share or the shine that it once had to throw it's weight around.
"Apple is said to have asked downstream part and component suppliers, excluding Taiwan Semiconductor Manufacturing Company (TSMC) and Largan Precision, to reduce their quotes for iPhone 7 devices by as much as 20% even though order volumes for new phones are reportedly 30% lower than those placed a year earlier.
Major downstream suppliers, notably Advanced Semiconductor Engineering (ASE) and associated companies under the Foxconn Group, have replied to Apple that they could not be able to accept orders without reasonable profits at this time."
It was reported a year ago that OPPO was in the final stages of negotiations with Foxconn to make their smartphones. According to an IDC report published earlier this week, OPPO last quarter was the number two OEM in China selling 18 million units compared to Apple's 8.6 million, rising 124% year-over-year. So Foxconn has the business to fill in for Apple's lower volumes and doesn't need to lower prices like it once did.
The commentary further noted that "Apple is leveraging the rising handset supply chain in China to force Taiwan-based companies to reduce their quotes comparable to those offered by China-based suppliers. But it makes no sense for such a requirement since the quality of products rolled out by Taiwan and China-based suppliers is standing at different levels.
Apple appeared to have chosen to by-pass TSMC and Largan and did not require the two companies to reduce their quotes simply because it is difficult for Apple to find alternative sources to replace TSMC or Largan to offer foundry services or high-end camera modules, respectively."
Though in the end, the report was clearly labelled a commentary. Obviously the Taiwanese supply chain is frustrated that Apple is now using China's growing supply chain against them to lower prices and some suppliers see that as a betrayal for those that have worked with Apple year after year earning low margins. It's that frustration that is being voiced in this commentary.
Yet another article that surfaced earlier this month from Nikkei Asian Review really put's the issue into better perspective. Yes, Apple's supply chain is hurting, but the growth that Apple's suppliers have experienced over the years shouldn't be so easily dismissed. The report makes today's 'commentary' from Taiwan look like a whiner's tale.
The Nikkei report noted that Apple supplier Largan Precision, currently the highest priced stock on the Taiwan Stock Exchange, gained more than 400% over the past 10 years largely due to Apple. Largan Precision has been the sole iPhone camera supplier since 2007, when Apple launched its first phone. Its irreplaceability has helped the company boost its performance and stand out among suppliers.
TSMC's share price rose more than 200% in the past decade. Pegatron is an iPhone assembler whose stock price advanced 123% since it was listed in 2010. In 2015 53.6% of Foxconn's business was from Apple. The report covers many others who have done well by being an Apple supplier over the years.
So while the last two quarters have been painful for many of Apple's long standing suppliers, the whining in today's DigiTimes Commentary seems a little unwarranted and a little too personal to be taken too seriously.
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