Design Con 2015

Suppliers Squeezed as Apple Cuts Components Orders

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Barbara Jorgensen
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Suppliers squeezed
Barbara Jorgensen   1/14/2013 10:53:04 AM
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This will be particularly bad for companies that count Apple as their single largest customer. Although most component makers don't use Apple's name, a few chip makers rely on Apple for more than 50 percent of their quarterly revenue. As analysts pointed out last year, Apple is an economy in and of itself, so it's going to hurt everyone in its supply chain.

I know many iPhone users that aren't happy with the costs associated with the iPhone 5 and are perfectly happy with the iPhone4S. I think Apple overestimated itself this time by introducing a product that's not compatible with many of its own accessories; requires lots of data but is otherwise similar to prior products.

I also wonder if pricing isn't beginning to play a role. At Samsung's prices, I'm willing to try new things (a tablet, for example) without feeling gypped if it doesn't live up to expectations.

Bolaji Ojo
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Re: Suppliers squeezed
Bolaji Ojo   1/14/2013 3:13:41 PM
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Barbara, Your comments included several valid points. Pricing was considered irrelevant in the case of Apple because it was assumed people would be ready to pay a premium for its products. That was the case until competing products became "competitive," that is, they matched and in cases exceeded Apple devices.

The second equally important point you made is the forecast Apple had for its products. The company failed to correctly read market conditions. I've noted for a while that rivals had to "get it right" otherwise they would be burried under the Apple avalanche. In reality, though, they were bound to eventually hit the mark through sheer determination and the reality that their businesses could go under if they failed to match Apple's design and production efficiencies. What Apple needed to do was anticipate this and try to stretch it out as much as possible. The executives also should have been checking out rivals' products and the consumers' acceptance level for these products. This would have been considered as they planned production forecasts. It's possible they believed their own hype.

The real issue here is where do suppliers go from here? Apple is still a major consumer of electronic parts and I can't imagine any supplier lucky to have its products designed into its devices turning down orders because one set of forecasts were off.

FLYINGSCOT
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Supply Network Guru
every dog
FLYINGSCOT   1/14/2013 12:55:56 PM
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I wonder if Apple reign is coming to an end or at least a rock patch in the road.  I speak to a lot of people these days who seem delighted with their Droid phones and even the latest Nokia Windows phones are being well received (according to my one man straw poll that is)

Bolaji Ojo
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Re: every dog
Bolaji Ojo   1/14/2013 3:50:44 PM
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There may be a simpler explanation for the reduction in components orders by Apple. It's not such a huge surprise that demand drops at the start of a new year. Any surge in demand during the holidays usually results in a big drop off in the first quarter and most companies anticipate this and signal to suppliers ahead the need to cut supplies.

Apple may not have done this initially because expectations have always been that the company would defy the traditional post-holiday sales lull. That's obviously no longer the case. Competitors' products are better and demand for them stronger.

Wale Bakare
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Supply Network Guru
Re: every dog
Wale Bakare   1/15/2013 7:31:08 PM
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It is becoming a difficult markets for others in smartphone sector. Apple should look beyond one i - phone making in world markets. Today, Samsung marked 100million sale of just a product( Samsung Galaxy S II) amongst its many smartphone brands. Yet, it's still selling more on its Note III, ACE and others.

rohscompliant
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Production Synthesizer
not surprised.
rohscompliant   1/14/2013 2:15:11 PM
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I believe that Samsung is pretty well vertically & horizontally integrated; more so than Apple? They put their own stuff into their own phones as a result they have a better handle on costs......no? After seeing what the new Samsung phones can do over this past weekend I am not surprised that they have a larger market share. We gave one of our adult children a new IPhone5s for Xmas and after using it a bit I asked him why his new phone is better tham my IPhone 4S......he had no concrete answers that it was........good thing he got a bunch of Apple Gift cards.......so he can buy all the new peripheral accesories required since they changed their connection points........not a smart customer loyalty move.........APPLE is going to have to get it's act together again....get off their high horse.

_hm
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Supply Network Guru
New iPhone!!!
_hm   1/14/2013 8:01:36 PM
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Another reason for Apple reducing current order is that they may be coming out with new iPhone! Good products by Samsung and other. Lower cost is good for consumer. Apple must reduce cost of their product.

 

Bolaji Ojo
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Re: New iPhone!!!
Bolaji Ojo   1/15/2013 8:20:10 AM
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_hm, That doesn't explain it. Apple may be coming out with a new phone but that's in the future and many of the components in the current device will be used.

Barbara Jorgensen
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Suppliers and Apple
Barbara Jorgensen   1/15/2013 8:31:09 AM
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Bolaji: I agree regarding suppliers. Normally, I'd suggest they take their business elsewhere, except in this case, Samsung is so vertically integrated that suppliers will have less of an opportunity. Even at a competitive price, Samsung could probably beat it. I think a few key select suppliers whihc already have inroads are well positioned at Samsung. I would also think that Apple uses suppliers common to many of its products, so maybe they'll spread some of that sell around. But Apple's cuts will definitely hurt the supply chian at large.

chipmonk
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Production Synthesizer
Apple will need to adjust to the reality
chipmonk   1/15/2013 11:32:37 AM
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Apples vulnerability is its dependence for critical components on its competitors. Samsung is world leader in display technology, memory chips and is going really gung ho. They have deep expertise and capabilityin Physics, design and manufacturing. To stay ahead of the pack in established products like SmartPhones & Tablets, Apple will have to create a deep bench itself. Won;t hurt if Apple brodened its supplier base and went back to Japan, in spite of Japan being 20 % more expensive than So. Korea or Taiwan. Of course Apple can squeeze a few more years of high margin by bringing out entirely new products like a networked TV. 

kjosefschmidt
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Stock Keeper
Ripple effect of Apple's push-out of component orders
kjosefschmidt   1/15/2013 4:21:46 PM
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Apple's push-out of orders is a wake-up call for suppliers that have invested the majority of their resources in one customer. These are Apple suppliers that, in order to support Apple's demands, have turned away business from other customers. They will soon be pleading with those other customers for a second chance. The ripple effect will result in extra factory capacity throughout the supply chain, including second and third tier suppliers, and suppliers will be scrambling to fill that capacity by offering component prices below market as an incentive to gain design approval as a second or third source.

Bolaji Ojo
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Blogger
Re: Ripple effect of Apple's push-out of component orders
Bolaji Ojo   1/15/2013 10:11:23 PM
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kjosefschmidt, You just put your finger on one of the long-term reasons behind some of the industry's demand-supply imbalances. Well put!

_hm
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Supply Network Guru
Tim Cook - will he go soon?
_hm   1/15/2013 8:09:35 PM
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If Apple result detoriates further, will Tim Cook be forced out? Apple needs some technical leader to give new path to it.

 

Bolaji Ojo
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Re: Tim Cook - will he go soon?
Bolaji Ojo   1/15/2013 10:04:10 PM
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_hm, Tim Cook's neck is not on the line even if Apple's performance deteriorates and that's not really the case here. The company doesn't have another big name executive waiting in the wing but I am sure they won't have problems replacing him.



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