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Apple Preps Supply Chain for Battle Ahead

With the launch of new products just months away, reports suggest Apple Inc. is somewhat uncertain about the strength of its supply chain execution.

Undoubtedly, Apple executives have a lot to think about. Unlike those years when Apple introduced the first iPad or launched its first iPhone, the company now has formidable competition from Samsung Electronics Co. and there's a growing tidal wave of research that indicates Apple is losing ground in some areas of the market.

Counterpoint Technology Market Research's latest analysis, as reported on Bloomberg News, for example, has found that monthly global smartphone data for May shows Samsung in first place in the smartphone market of phones priced above the $400 price point. Samsung has a 47 percent market share, surpassing Apple in this category.

The research also shows that the combined sales of the new Galaxy S4 and the previous Galaxy S III and Note II were the main cause of the rise in market share. Additionally, end-of-life-cycle Galaxy S III sales were strong, and the Note II was priced competitively in China and other global markets.

Apple adjusts
Samsung's secondary market strategy could be part of the reason why Apple has embarked on its own plan, according to another Bloomberg report, to launch an iPhone trade-in program. By enticing consumers to turn in their old iPhone models for an iPhone 5, Apple hopes to ignite sales of their new phones while making money on older products.

The move represents a significant shift and a strategy focused on the refurbished iPhone market, which is an area Apple has paid little attention to in the past.

There are other parts of the supply chain that Apple feels are cause for concern. Foxconn Technology Group, the dominant contract manufacturer for Apple's iPhones and iPads, now has healthy competition from Pegatron Corp., a Taiwanese electronics manufacturing company that will be the primary assembler of low-cost iPhones expected later this year.

According to the Wall Street Journal, Apple wants to balance its supply chain and diversify its manufacturing options. This move suggests that Apple is no longer confident in Foxconn's ability to deliver products in the way Apple has become accustomed to over the years. Certainly, this view gains greater currency in the wake of recent reports that Apple returned between five to eight million iPhones to Foxconn because the contract manufacturer made products that were dysfunctional and had flaws in appearance.

As Apple prepares to introduce its low-cost phone and other products onto the global market, the company can ill afford to have a weak link in its supply chain, which will be under intense pressure to meet supply and demand commitments.

Time will tell
We can only wait to see if Apple's supply chain adjustments will have any positive impact on sales of new products, especially in China, where Apple hopes to further boost its sales and grow market share. Even in China, Apple has had to adjust its supply chain strategy.

In the aftermath of recent criticism from Chinese state-run press regarding what Chinese commentators described as Apple's unfair warranty policies, the company issued an unusual letter of apology, and outlined steps to improve its warranty and customer service policies in China.

It takes a lot of forethought to make adjustments to a supply chain, and part of that planning involves a recognition that weaknesses exist in various parts of the supply network.

Apple is facing a challenge from a competitor, Samsung, whose products have similar features, are priced competitively in the marketplace, and whose ability to compete with an equally efficient supply chain strategy has been demonstrated.

Apple's executives like CEO Tim Cook understand this reality. They probably also recognize that even while making adjustments to their supply chain, Apple may not realize the success it is striving for.

35 comments on “Apple Preps Supply Chain for Battle Ahead

  1. prabhakar_deosthali
    June 24, 2013

    Apart from Samsung, a third star is about to rise on the smart-phone horizon and that is the Lenovo-NEC combine and Apple has to have a strategy to counter this competitor also.

  2. Lavender
    June 24, 2013

    Samsung's rapid expansion and growth in smartphone and tablets posts a great threat to Apple, so that it has to consider introducing low-price iPhone, with high-end market moving toward saturation. 

    But the change will undoubtedly forms impact to Apple's image, a representative of high-end and luxurious product. 

    Besides, whether the so-called optimization of supply chain can brings good result is still of doubt. Most important, Apple should launch really amazing products as soon as possible. 

  3. Taimoor Zubar
    June 24, 2013

    Apart from Samsung, a third star is about to rise on the smart-phone horizon and that is the Lenovo-NEC combine and Apple has to have a strategy to counter this competitor also.”

    @prabhakar: I don't Lenovo would be that big of a threat to Apple yet. Already Samsung is posing tough competition to Apple and Apple needs to focus on it. Lenovo will become a big player but that will take some time. Other players like LG and HTC are already there but they also aren't posing any real threat to Apple.

  4. Taimoor Zubar
    June 24, 2013

    Samsung's rapid expansion and growth in smartphone and tablets posts a great threat to Apple, so that it has to consider introducing low-price iPhone, with high-end market moving toward saturation. “

    @Lily: I think what Apple is doing now is a bit late. Samsung was clever enough to enter the low-end smartphone market and capture a major chunk of it and then move to high-end market with products like S series and Note. Even if Apple now wants to enter the low-end market, it is faced with a very tough competition from not just Apple but also other players too.

  5. Adeniji Kayode
    June 24, 2013

    @Lily,

    Are you saying Apple may have to compromise it present standard to maintain its position in the market place.

     

  6. Adeniji Kayode
    June 24, 2013

    @Taimoorz,

    I really agree with you on that,Apple should have given consumers many product to choose from with different price range but kept busy maintaining the standard of high quality/tablets phones with high price on them

  7. Adeniji Kayode
    June 24, 2013

    @Taimoorz,

    what do yopu think will happen to Apple,s Pride if it enters low-end market even though that seems to be working for Nokia right now?

  8. Mr. Roques
    June 24, 2013

    Apple has to make a decision. Will they battle the mobile market regardless of the policies they had implemented before? What I'm trying to say is that Apple has always been in a league of their own when it comes to computers. They didn't follow anyone's rules.

    If they come out with a cheap version of the iPhone, it's a clear sign that they have adapted to the mobile market. The 7″ tablet is another option they did because the market made them.

  9. Ariella
    June 24, 2013

    @Mr. Roques good observation. Do you think they will take a new appraoch now?

  10. elctrnx_lyf
    June 24, 2013

    Couple of quarters from now we will probably hear more and more interesting new in the mobile market space. Hopefully apple can come out with something magical to turn around their share in smartphones.

  11. Ariella
    June 24, 2013

    Today's WSJ reports:

    Apple Inc. shares fell below $400 for the first time since April amid a global selloff that started in China and is now hitting U.S. markets. Apple shares, which had stabilized over the past two months following the big tumble that kicked off the year, now appear ready to test their lows of the recent cycle.

    A combination of increasing competition in Apple's core products and waning investor faith in the company's ability to innovate has played a role in the stock price's tumble from its record high above $700 in September.

     

  12. Tom Murphy
    June 24, 2013

    Taimoor:  I would say that any major player in the phone market is a threat to the whole network of manufacturers:  Apple, Samsung, HTC, Nokia, and any possible Lenovo product.  I've seen the lead in the industry change every year or two for as long as I can remember.  You might recall when Motorola seemed to own the industry, or Nokia?  Today, Samsung is replacing Apple. Who will replace Samsung?   Does Apple have something coming up that will regain market share? Will the new Nokia phone finally gain traction?  Will Lenova-NEC come up with something that is better and cheaper?

    All I know for sure is that phone companies have to manage their supply chains with extreme precision these days. Mistakes are very, very costly.

  13. Tom Murphy
    June 24, 2013

    Mr. Rocques: True, Apple wowed the world with the iPhone. But what has it done lately?  Now there are phones that are rated as good or better, and are cheaper.  Price is now an issue, and that is not Apple's forte. 

    You're right, they were always able to hold onto a part of the market that loves Apple gear. But a lot of their newer customers are after value, not the Apple brand name.

  14. The Source
    June 24, 2013

    Prabhakar,  

    I've noticed that Google owned Motorola Mobility is ramping up operations in Texas to manufacture Google's next phone, the Moto X.

    That will be another smartphone to contend with in the marketplace.  The field is crowded, but at the moment the smarphone market is dominated by Apple and Samsung, and that won't change for now.

     

  15. Wale Bakare
    June 24, 2013

    Buying back old iPhones a boost to supply chain. But magic to fight off competitors like Samsung? Low cost iPhone would probably do the tricks with its highly secured and top quality brand known for.

  16. Lavender
    June 25, 2013

    Yes, Taimoorz. For Apple, it is too late to enter low-end smartphone market. Especially in China, the world's largest phone market, there are many local players, such as Huawei, ZIE, Lenovo…

    But with high-end market moving toward saturation, Apple has to consider low-end market strategy. It is a dilemma. 

  17. Taimoor Zubar
    June 25, 2013

    what do you think will happen to Apple,s Pride if it enters low-end market even though that seems to be working for Nokia right now?”

    @Adeniji: Over the years Apple has tried to maintain its image of being a high quality brand targeting only the enthusiasts. I do agree that it would hurt Apple's reputation a bit if it decides to change its strategy but the company has to make money somehow so this may not be a bad move.

  18. Taimoor Zubar
    June 25, 2013

    If they come out with a cheap version of the iPhone, it's a clear sign that they have adapted to the mobile market. The 7″ tablet is another option they did because the market made them.”

    @Mr. Roques: I do agree that Apple is becoming more market driven now rather than driving the market. I think it's because the market is maturing and users are becoming more aware of what they want. Other companies are also shaping users' expectations and Apple cannot simply continue making products at their own will without looking at the market needs.

  19. Taimoor Zubar
    June 25, 2013

    All I know for sure is that phone companies have to manage their supply chains with extreme precision these days. Mistakes are very, very costly.”

    @Tom: I do agree that none of the competitors can be taken lightly but what I meant was that there's some difference in the level of competition and understanding that difference can help companies focus more on what's really critical right now and what make become critical at some point later. Apple has to compete with Samsung right now and ensure that every aspect of their operations (including the Supply Chain) is geared towards competing. Companies like Lenovo may become a threat down the road but Apple cannot afford to shift focus away from the prime competitor at the moment.

  20. SP
    June 25, 2013

    There looks to be cut throat competition in smartphone market with Samsung trying everything possible to get first in the game. Their strategy seems to be pull the other down rather than to just concentrate on self appraisal. A healthy competition always brings up good product in the market but unhealthy forces one of the contenders into deep pressure.

  21. Wale Bakare
    June 25, 2013

    I agree with you sustainability paramount to any company. I dont really think that would matter anyway but if Apple compromises on its quality of low price iPhone that may pose a big problem.

  22. FLYINGSCOT
    June 25, 2013

    I can't help but feel that Apple has lost its edge somewhat and that consumers are being wooed by competitive offerings and that Apple products are not sacrosanct anymore.  Much of this should be attributed to the likes of Samsung who are bringing out truly innovative products at a vey rapid lick.

  23. Himanshugupta
    June 25, 2013

    Apple somehow did not take advantage of its leading position and extraorbitant bank balance to wipe out some of the competition as some other companies did in the past. Maybe the executive were in dilemma to either save the brand image from getting diluted or too buyoant on the complete sucess of iPod and early success of iPhone.

  24. Himanshugupta
    June 25, 2013

    Buyback offer was a good stratege to boost the iPhone sale but this can provide a temporary relief to the company on growing competition. The only way to gain back the lost ground for Apple is to come back with really innovative products and expand its product base. I think fighting in lost cost smartphone is not a good idea as the margin will be low. Apple has been thinking (or rumoured) to complete in low cost segment for sometime but it will need to provide the same quality and brand as it has been providing in higher cost other Apple will dilute its brand image.

  25. Tom Murphy
    June 25, 2013

    Himanshu, I think Apple has been unable to innovate in recent months, though it has many, many brilliant inventors in its ranks.  As for spending money to counter the competition, there are two problems. First, much of Apple's cash is locked up overseas and would be subject to US taxes if it were brought home.  Second, a negative campaign against competitors would probably sound defensive.  I do wonder why Apple is so consumed in building a $1 billion headquarters at a time when its stock is down more than 40%, its supply chain is shifting, and industry watchers (including us) are wondering if it has a “next big thing” waiting in the wings.   Maybe Apple could say: “Hey, really, we have something really cool coming up soon…stay tuned.”  Personally, I'm not holding my breath, and neither are investors.

  26. Mr. Roques
    June 25, 2013

    Exactly. 

     

    I know the mobile and tablet market are booming but why aren't we seeing all the cool features we find in smartphones migrate to our laptops/desktops? Why isn't anyone going after Apple's MBP marketshare? Samsung now knows Apple is not invincible and if anyone can go after them, it's them.

  27. Mr. Roques
    June 25, 2013

    Well, that might be one reason but what about the laptop market? They are clearly leading the market, people die for their MBP – and that's a very mature market. 

    The problem has been that they haven't been able to provide a good-enough competitive advantage, or one that can stand the stress of time. 

  28. itguyphil
    June 25, 2013

    “The problem has been that they haven't been able to provide a good-enough competitive advantage”

    What do you mean? Apple's positioning is there competitive advantage.

    There problem will be if people will still think it's worth the extra bucks if they keep avoiding good innovations (as they have with their latest releases).

  29. _hm
    June 25, 2013

    Apple should learn lessons from NHL / Stanley Cup match. They should play their own game of innovation and should not worrry much for Samsung. They will be ultimate winner.

    Better processor, lower power consumption, nifty iOS and apps to venerate, innovation in display are ways to march ahead. Apple will give innovative and new trend making device in near future.

     

     

  30. Tom Murphy
    June 26, 2013

    The Macbook Pro is a lovely machine. But, let's face it, like the iPhone, it's looking a little dated now.  The iPad was pretty cool when it finally arrived about a year after everyone knew it was coming; now I think I'd rather have a Surface or a nice Droid, and spend the rest of the money on a car payment.  Apple has about six months to turn this around, and I genuinely hope it does.  Otherwise, it can kiss that new corporate headquarters good bye and start following in the tracks of Yahoo and other mighty companies that we thought would never be humbled.

  31. Houngbo_Hospice
    June 26, 2013

    @Mr. Roques,

    In a competitive market, no company is invincible. An unless, Apple comes up with another big innovation, it might soon be on decline.

  32. Houngbo_Hospice
    June 26, 2013

    @_hm,

    “Apple will give innovative and new trend making device in near future.”

    Easier said than done. I have the impression that the next new trend will not likely come from Apple. 

  33. Houngbo_Hospice
    June 26, 2013

    @pocharle,

    Apple is declining not because its products are no longer of good quality, but it is rather because competitors are offering similar or better alternative products. Consumers always want something new. So the competitive advantage is no longer on Apple side.

  34. hash.era
    June 27, 2013

    @Hospice: I cant agree with you on it. True Apple went down with I phone 5 but surely they are the ones who revolutionized the world of smart phones and its them who are being copied by many. They will and have the capability to do so in the near future for sure.      

  35. itguyphil
    June 27, 2013

    I'm not arguing about the quality. But Apple has always been “the next best thing”. Not so much anymore. They are just another thing available with an Apple logo.

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