Apple reportedly absorbing increased costs from supply disruption in Japan
A new report out of the Far East alleges that Apple has agreed to absorb increased costs for upstream Japanese components in order to prevent shipping delays of the iPad 2.
Sources from upstream component makers told Taiwanese industry publication DigiTimes on Thursday that Apple had agreed to the arrangement.
According to the report, Apple will absorb all the additional costs arising from Japan-based component makers affected by a massive earthquake earlier this month, in exchange for "smooth shipments." As such, Apple's upstream component suppliers are expected to see minimal negative affects to profitability, sources said.
"However, for other tablet PC vendors, purchasing pressure will increase and if they are unable to absorb the extra costs, which will only give Apple more advantages in the market," the report noted.
Sources also claimed that monthly shipments of the iPad 2 will reach four million units in the second quarter. According to the report, upstream suppliers of anisotropic conductive films (ACF) and ITO materials have enough inventory to last until May, but may face shortages in June.
The DigiTimes report may be related to an earlier report that suggested Apple was "considering accepting price hikes" in order to secure sufficient supply of touch panels. It has been suggested that Apple makes use of 60 percent of the global supply chain touch panel capacity.
Analysts have differed over the immediate impact of the Japan quake and subsequent tsunami to Apple's supply chain. An early report by iSuppli disclosed five important components sourced from Japan for the iPad 2, including NAND flash, DRAM, an electric compass, touch screen overlay glass and the battery, "likely to be impacted" by logistical issues as a result of the disaster.
However, Gene Munster of Piper Jaffray voiced his opinion that any impact to iPad 2 supply would be "modest."
Earlier this week, The Wall Street Journal reported that Apple had contacted a Japanese supplier expressing concerns over a potential shortage of lithium ion batteries used in the company's iPods.
Apple's healthy cash reserves give it a clear advantage over its competitors. CEO Steve Jobs has said that the company's more than $50 billion in cash is reserved for "one or more strategic opportunities in the future."
In January, Apple COO Tim Cook revealed that the company had committed $3.9 billion to long term component supply contracts over the next two years. Analysts
Sources from upstream component makers told Taiwanese industry publication DigiTimes on Thursday that Apple had agreed to the arrangement.
According to the report, Apple will absorb all the additional costs arising from Japan-based component makers affected by a massive earthquake earlier this month, in exchange for "smooth shipments." As such, Apple's upstream component suppliers are expected to see minimal negative affects to profitability, sources said.
"However, for other tablet PC vendors, purchasing pressure will increase and if they are unable to absorb the extra costs, which will only give Apple more advantages in the market," the report noted.
Sources also claimed that monthly shipments of the iPad 2 will reach four million units in the second quarter. According to the report, upstream suppliers of anisotropic conductive films (ACF) and ITO materials have enough inventory to last until May, but may face shortages in June.
The DigiTimes report may be related to an earlier report that suggested Apple was "considering accepting price hikes" in order to secure sufficient supply of touch panels. It has been suggested that Apple makes use of 60 percent of the global supply chain touch panel capacity.
Analysts have differed over the immediate impact of the Japan quake and subsequent tsunami to Apple's supply chain. An early report by iSuppli disclosed five important components sourced from Japan for the iPad 2, including NAND flash, DRAM, an electric compass, touch screen overlay glass and the battery, "likely to be impacted" by logistical issues as a result of the disaster.
However, Gene Munster of Piper Jaffray voiced his opinion that any impact to iPad 2 supply would be "modest."
Earlier this week, The Wall Street Journal reported that Apple had contacted a Japanese supplier expressing concerns over a potential shortage of lithium ion batteries used in the company's iPods.
Apple's healthy cash reserves give it a clear advantage over its competitors. CEO Steve Jobs has said that the company's more than $50 billion in cash is reserved for "one or more strategic opportunities in the future."
In January, Apple COO Tim Cook revealed that the company had committed $3.9 billion to long term component supply contracts over the next two years. Analysts
Comments
This shows how apple actually cares about their customers. They will pay more money to get the iPad 2 components, and sell them at the same price as they sell them now, meaning they will end up making less profit per unit. I'd love to see how many other companies like Dell and up which r trashing apple lately would do the same. I think instead they would slow down their sales just to maximize their profit per unit... Apple rocks once again..
What this shows is Apple doesn't want to give any competitor any opportunity to catch up. The appearance of caring is a nice benefit, but it wasn't part of the decision tree.
Short term, this is going to be bad for AAPL's price action. Any noticeable drop in margin would cause AAPL to drop at least 10%....
It depends on how long this "short term" is.
If Apple has to eat some margin on a few million iPads now... but they go on to sell 20-22 million iPads the rest of the year... I think they'll be fine.
Short term, this is going to be bad for AAPL's price action. Any noticeable drop in margin would cause AAPL to drop at least 10%....
I think that the more iPads they get into the hands of consumers, and the extra app-store revenue afterwards with their new iPads, the increased cost being absorbed won't sting as much.
Either way, Apple's in a good position compared to the competition. That's what's nice about having such a nice cash-hoard to sit on to act as a financial shock-absorber during bumpy times.
This shows how apple actually cares about their customers.
Yes, how nice of them. They do everything possible for their costumers; it puts tears in my eyes.
Gotta maintain those 'incredible' price points.
Is that all you've got? Poor ol' DaHarder.
Gotta maintain those 'incredible' price points.
Keep trying, DaHardly ..... the law of averages says that, sooner or later, you'll get one right.
Keep trying, DaHardly ..... the law of averages says that, sooner or later, you'll get one right.
Not as long as there is the law of nature, i.e., as classically used, natural law refers to the use of reason to analyze human nature and deduce binding rules of moral behavior.
I think that the more iPads they get into the hands of consumers, and the extra app-store revenue afterwards with their new iPads, the increased cost being absorbed won't sting as much.
Either way, Apple's in a good position compared to the competition. That's what's nice about having such a nice cash-hoard to sit on to act as a financial shock-absorber during bumpy times.
Ah, you had to mention the cash hoard didn't you?
What good did the last 55 billion of the 60 billion do them in this case? What did they do here that couldn't have been done with 5 billion in the bank instead of 60? Nada!
Remind me again why they built a nuclear reactor right next to the sea? The contamination has spread into the sea water. Bye bye food chain. Sushi might be off the menu for a while.
Nuclear reactors are built next to the sea because they need cooling. Sea water is a cheap and effective way to cool the reactors.
At least all that radiation will be nicely diluted it if gets into the sea.
Remind me again why they built a nuclear reactor right next to the sea? The contamination has spread into the sea water. Bye bye food chain. Sushi might be off the menu for a while.
Because a malfunctioning nuclear reactor that has no ready access to a large body of water for emergency cooling would probably fail catastrophically, releasing HUGE amount of radioactive material into the air. Fukushima disaster is pretty bad right now, but had they not had sea water to cool the reactors, it would probably be 10 times worse.
Ah, you had to mention the cash hoard didn't you?
What good did the last 55 billion of the 60 billion do them in this case? What did they do here that couldn't have been done with 5 billion in the bank instead of 60? Nada!
Regardless of the what. A strong cash position pleases stock markets no end.
And others are going on about it hurting Apple in the long-term if they absorb the cost, I don't see how it is going to hurt Apple MORE than a manufacturer that has ZERO room for manouver on pricing because there is next to no profit in their segment of the market.
The fact that Apple can easily afford to take these kind of economic changes with little to no effect is definitely a good thing.
Seems more likely that the cheap-ass hardware manufacterers are more likely to go under in these situations as they'll either have to put prices up or sell at a loss.