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Apple expected to partially absorb higher quality control costs for iPhone 5

post #1 of 23
Thread Starter 
Difficulties in manufacturing the iPhone 5 are expected to affect Apple's gross margins for the near term, as the company is predicted to absorb some of the quality control costs associated with producing its latest handset.

Ahead of this Thursday's Apple quarterly earnings report, analyst Shaw Wu with Sterne Agee said he expects "vintage conservative" guidance from the company ahead of a big holiday quarter. The key reason for that expectation, he said, is he believes Apple will partially absorb quality control costs associated with the iPhone 5.

Wu believes Apple's near-term gross margins will be between 40.5 percent and 41.5 percent. That's lower than Wall Street consensus between 42 percent and 43 percent.

The prediction comes less than a week after an unnamed official with Foxconn, Apple's assembly partner, said the new iPhone 5 is the Most difficult device the company has ever assembled. The complex design of the iPhone 5 has apparently resulted in low yields, which has led to constrained supplies in the market.

Scuffgate
Source: @rollermog via Twitter


Beyond the iPhone 5, Wu believes that Apple's margins will also be pushed lower by the anticipated launch of a smaller 7.85-inch iPad. He expects Apple will sell its so-called "iPad mini" at lower margins than the full-size iPad, at least initially, allowing the company to achieve a lower price point and take on competitors like the Amazon Kindle Fire HD and Google Nexus 7.

For the September quarter, Wu believes Apple sold between 25 million and 26 million iPhones, slightly lower than Wall Street consensus of 27 million. He has also predicted iPad sales of 16.5 million, just below consensus of 17 million to 18 million. And for the Mac, he sees Apple having sold 4.8 million units, at the upper end of Wall Street consensus of 4.7 million to 4.8 million.
post #2 of 23
I can wait. My iPhone 4 with iOS 6 will certainly tide me over.

If only the battery wasn't losing its "fizz"... :-/
post #3 of 23
I went into a Vodafone store here in the UK. Not only where both the iPhone 5s not connected to any power source, (batteries discharged too), but the black one had pot marks all around the edge. Not sure why Vodafone are intentionally not promoting the iPhone 5 (all the other brands of phone were connected and working fine), but I could guess that they may be intentionally discouraging purchase because of the potential for returns. BTW, whilst I have seen people leaving stores with an iPhone 5, yet to see one out in the real world. I think this phone may well be the beginning of Apple's undoing. Google's model is way more robust and cloud centric than Apple's and it will only take on 'tipping point' incident to begin to knock Apple down, and if an expensive to 'service' product such as the iPhone 5 is it, then things are about to get interesting.

And this before the all new Googlised Motorola begin to launch their next generation devices in 2013...

#battlestations
post #4 of 23

Apple is Doomed™

post #5 of 23
Expecting a 42-43% margin. That's ridiculous.
post #6 of 23
Quote:
Originally Posted by Oflife View Post

I went into a Vodafone store here in the UK. Not only where both the iPhone 5s not connected to any power source, (batteries discharged too), but the black one had pot marks all around the edge. Not sure why Vodafone are intentionally not promoting the iPhone 5 (all the other brands of phone were connected and working fine), but I could guess that they may be intentionally discouraging purchase because of the potential for returns.

I've heard that salesmen at Future Shop (electronics retail chain here in Canada) dislike Apple products because they don't get the same kickbacks from Apple that they do from other companies. Could be the same story at Vodafone.

 

As someone who works creating technology, it pisses me off to think that not doing gladhanding becomes a barrier to the marketplace.  Innovation and quality should be the highest goals one reaches for in the industry, not trying to get things to market as quickly and cheaply as possible and then using the money you saved to buy off the supply chains.  Alas, if the average consumer doesn't care one way or another, this is exactly what will become the "winning" strategy for companies.

 

A world of bland, mediocre, half-baked, copycat technology. *shudder*.  Though I guess that describes what sells best in any market.


Edited by auxio - 10/22/12 at 6:45am
 
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post #7 of 23

In Ireland.

 

2009 16GB iPhone 3GS = €599

2010 16GB iPhone 4 = €599

2011 16GB iPhone 4S = €599

2012 16GB iPhone 5 = €679

 

Absorbing costs? LOL

Citing unnamed sources with limited but direct knowledge of a rumoured device - Comedy Insider (Feb 2014)
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Citing unnamed sources with limited but direct knowledge of a rumoured device - Comedy Insider (Feb 2014)
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post #8 of 23
Quote:
Originally Posted by Ireland View Post

In Ireland.

2009 16GB iPhone 3GS = €599
2010 16GB iPhone 4 = €599
2011 16GB iPhone 4S = €599
2012 16GB iPhone 5 = €679

Absorbing costs? LOL

You're not understanding what it means to absorb costs.

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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post #9 of 23
Quote:
Originally Posted by AppleInsider View Post

Difficulties in manufacturing the iPhone 5 are expected to affect Apple's gross margins for the near term, as the company is predicted to absorb some of the quality control costs associated with producing its latest handset.
Ahead of this Thursday's Apple quarterly earnings report, analyst Shaw Wu with Sterne Agee said he expects "vintage conservative" guidance from the company ahead of a big holiday quarter. The key reason for that expectation, he said, is he believes Apple will partially absorb quality control costs associated with the iPhone 5.
Wu believes Apple's near-term gross margins will be between 40.5 percent and 41.5 percent. That's lower than Wall Street consensus between 42 percent and 43 percent.

 

Oh please, this is the same wash rinse and repeat as every launch and every quarter. The analysts overdo it on their guesses but they won't just say they were wrong. So they trump up supply issues, production problems etc. 

 

The iphone 5 is having a supply issue because it is not humanly possible to make more than what they are making but demand is currently above that amount because no one wants to be the last guy to get the new cool thing. Period. Apple doesn't stockpile for months before a launch. Maybe two or three weeks of production output but that's it. And they have to split that demand world wide or risk the same reseller insanity as what happened prior to the 4s and the ipad 3rd Gen (and still goes on to some degree just not as crazy of one)

 

As for the quality control costs, every new device launch has a 1-2% return rate due to 'failure' because Apple wants those units back, for any kind of issue. They encourage their stores to return for anything that MIGHT be a defeat. But they can still call those sales and will, just like Amazon still counted the thousands of Kindle Fires returned because of the lack of password and parental controls as sales and didn't mention they were returned when numbers were given out. It's a standard retail trick. But even with that expected returns and the general "i don't like it after all" returns, the iphone is still selling like mad, to the tune of millions of units. Probably broke records even, just like the 4s did, just like the 4 did. 

post #10 of 23
Quote:
Originally Posted by AppleInsider View Post

For the September quarter, Wu believes Apple sold between 25 million and 26 million iPhones, slightly lower than Wall Street consensus of 27 million. He has also predicted iPad sales of 16.5 million, just below consensus of 17 million to 18 million. And for the Mac, he sees Apple having sold 4.8 million units, at the upper end of Wall Street consensus of 4.7 million to 4.8 million.

 

OH NO, DUMP THE STOCK!! SELL SELL! SHORT IT TO $200, APPLE IS FINISHED.

 

/s

I'm not a pessimist. I'm an optimist, with experience.
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I'm not a pessimist. I'm an optimist, with experience.
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post #11 of 23
Quote:
Originally Posted by Ireland View Post

In Ireland.

2009 16GB iPhone 3GS = €599
2010 16GB iPhone 4 = €599
2011 16GB iPhone 4S = €599
2012 16GB iPhone 5 = €679

Absorbing costs? LOL

As the cost hasn't changed in the US and the price for 2012 has gone down in at least one region, I guess this is more to do with the Euro not being as strong against the Dollar this time around.
post #12 of 23
Quote:
Originally Posted by Oflife View Post

I went into a Vodafone store here in the UK. Not only where both the iPhone 5s not connected to any power source, (batteries discharged too), but the black one had pot marks all around the edge. Not sure why Vodafone are intentionally not promoting the iPhone 5 (all the other brands of phone were connected and working fine), but I could guess that they may be intentionally discouraging purchase because of the potential for returns. BTW, whilst I have seen people leaving stores with an iPhone 5, yet to see one out in the real world. I think this phone may well be the beginning of Apple's undoing. Google's model is way more robust and cloud centric than Apple's and it will only take on 'tipping point' incident to begin to knock Apple down, and if an expensive to 'service' product such as the iPhone 5 is it, then things are about to get interesting.
And this before the all new Googlised Motorola begin to launch their next generation devices in 2013...
#battlestations

Or it's just that they don't want to be bothered by buyers while the phone isn't in stock, it happens.

 

Also, I went to a music parade in Paris and, contrary to you, was surprised to see how many people were taking pictures with an iPhone 5 even if it only came out a few days before. Also, the phone is out of stock everywhere in France. This might be a commercial maneuver, but it seems to be REALLY hard to come by.

Google's model is robust but different. The only OS they have is only cloud-centered while Apple still needs to find a way to present offline and cloud files in a coherent and minimalist interface. I don't see what law says that after such a problem Apple should be knocked down, that's an exaggeration.

post #13 of 23
Quote:
Originally Posted by auxio View Post

I've heard that salesmen at Future Shop (electronics retail chain here in Canada) dislike Apple products because they don't get the same kickbacks from Apple that they do from other companies. Could be the same story at Vodafone.

 

As someone who works creating technology, it pisses me off to think that not doing gladhanding becomes a barrier to the marketplace.  Innovation and quality should be the highest goals one reaches for in the industry, not trying to get things to market as quickly and cheaply as possible and then using the money you saved to buy off the supply chains.  Alas, if the average consumer doesn't care one way or another, this is exactly what will become the "winning" strategy for companies.

 

A world of bland, mediocre, half-baked, copycat technology. *shudder*.  Though I guess that describes what sells best in any market.

 

I was thinking the same thing. I've heard it about the US carriers as well. To the point that they basically don't make any money off the sales of the handsets (they get maybe like 3-4% of the sale as a 'commission' from Apple but none of that goes to the sales person like it does with other phones). So they really don't care about pushing for those sales. I've heard that the lack of money is also why they will lie to customers and not take back 'defect on delivery' phones and exchange them out of their own costs -- the return eats into what little bonus they get. So even when they should be taking the hit as the seller under various consumer laws, they don't. They send folks to Apple. They also don't even try to get Apple Care added properly and screw with folks on that front (apparently now they just dont sell it at all, you want it you have to go to Apple which is annoying but at least it is done correctly and in the US you don't have to have an appointment at the Genius Bar anymore)

post #14 of 23
the iPhone 5 should have had hard Anodization instead of the "soft" anodization that it has...
( animal dies... LOL suri thinks "animal dies" sounds like " Anodize" when i Pronounce it... But I digress)


or is it because it is so thin that the components break easily before assembly?
post #15 of 23
Quote:
Originally Posted by OriginalG View Post

Expecting a 42-43% margin. That's ridiculous.

sarcasm?.. 'cause all businesses Strive for those profit margins (or at least gross profit margins)
post #16 of 23
Quote:
Originally Posted by charlituna View Post

 

I was thinking the same thing. I've heard it about the US carriers as well. To the point that they basically don't make any money off the sales of the handsets (they get maybe like 3-4% of the sale as a 'commission' from Apple but none of that goes to the sales person like it does with other phones). So they really don't care about pushing for those sales. I've heard that the lack of money is also why they will lie to customers and not take back 'defect on delivery' phones and exchange them out of their own costs -- the return eats into what little bonus they get. So even when they should be taking the hit as the seller under various consumer laws, they don't. They send folks to Apple. They also don't even try to get Apple Care added properly and screw with folks on that front (apparently now they just dont sell it at all, you want it you have to go to Apple which is annoying but at least it is done correctly and in the US you don't have to have an appointment at the Genius Bar anymore)

 

Yeah, luckily Apple has their own retail stores to fall back on while service at the other stores is pretty much dominated by "what's best for the salesman, not the consumer".  And the Carriers wonder why there's no loyalty?  You get what you give.

 
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post #17 of 23
Quote:
Originally Posted by auxio View Post

Yeah, luckily Apple has their own retail stores to fall back on while service at the other stores is pretty much dominated by "what's best for the salesman, not the consumer".  And the Carriers wonder why there's no loyalty?  You get what you give.

Yep. Fortunately Apple can do the full sale and activation on personal sales. Avoid carrier BS.
Unfortunately my work phone is paid by the company so I have to go to AT&T on that one. So I stuck with a feature phone. I'll use my company iPad for any 'not a call' stuff. Especially when we have a biggie on set that demands a wifi truck.
post #18 of 23
@oflife

I've seen many, many iPhone 5 in the wild. A few of my neighbors have them, and they all like them a lot. I've seen a bunch more with random folks out shopping, or where ever. I have not talked to those folks. But my best is they like them to. None of them looked displeased while using the iPhone 5.
post #19 of 23
Quote:
Originally Posted by haar View Post


sarcasm?.. 'cause all businesses Strive for those profit margins (or at least gross profit margins)


No, not sarcasm. I'll agree that traditional (non-tech) business strive for that margin, but in tech, this is insanely high. Look at Dell or HP, their margins are half of what Apple's are. Along with super-high expectations for growth, Apple is always under the gun and doesn't get the same treatment as other companies. 
 

This is sarcasm: Apple should have a P/E like Amazon's. haha

post #20 of 23
Quote:
Originally Posted by SolipsismX View Post


You're not understanding what it means to absorb costs.

I think the implication was that the costs were not being absorbed by Apple. Instead, as evidenced by higher retail prices, they were being passed along to the customer. But, maybe I'm missing something.

For your sake, I hope you're right.
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For your sake, I hope you're right.
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post #21 of 23
Quote:
Originally Posted by charlituna View Post

 

because Apple wants those units back, for any kind of issue. They encourage their stores to return for anything that MIGHT be a defeat.

 

Works out well for the consumer. I bought a 24" Cinema display a few years back, and it had the odd yellow gradient issue and a small ding on the bezel in the corner. Lugged it back to the Apple Store, and I was barely finished describing the problem and they had a new one in my hands. The store employee straight up said Apple very much wants to see defects like that. New monitor was perfect, BTW, and still going strong.

post #22 of 23
Quote:
Originally Posted by Carthusia View Post

I think the implication was that the costs were not being absorbed by Apple. Instead, as evidenced by higher retail prices, they were being passed along to the customer. But, maybe I'm missing something.

I see no evidence that the price was raised because of this issue as the US market hasn't changed. Foreign market prices will fluctuate based on projected value of the local currency. This is nothing new.

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

 

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post #23 of 23
Quote:
Originally Posted by auxio View Post

I've heard that salesmen at Future Shop (electronics retail chain here in Canada) dislike Apple products because they don't get the same kickbacks from Apple that they do from other companies. Could be the same story at Vodafone.

 

As someone who works creating technology, it pisses me off to think that not doing gladhanding becomes a barrier to the marketplace.  Innovation and quality should be the highest goals one reaches for in the industry, not trying to get things to market as quickly and cheaply as possible and then using the money you saved to buy off the supply chains.  Alas, if the average consumer doesn't care one way or another, this is exactly what will become the "winning" strategy for companies.

 

A world of bland, mediocre, half-baked, copycat technology. *shudder*.  Though I guess that describes what sells best in any market.

It's not that they get less 'kickbacks', it's that Apple keeps the margins for themselves (which are much higher than any Android OEM takes - the cost of an iPhone is less than a comparable Android phone), leaving slim margins for retailers, who in turn give less commissions to the salespeople.  Is it any surprise the salespeople at Apple stores work for a shitty hourly rate, and not commission?  

 

It's Apple's greed that will be their undoing.  Samsung is ditching Apple as their contract sucks, and mark my words, Foxconn will too eventually....

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