Apple reportedly 'demands' 10% price cut from key iPad suppliers as orders increase

Posted:
in iPad edited January 2014
Apple is said to be pressuring its overseas supply chain to reduce prices by 10 percent on component orders for the hot-selling iPad 2.



The iPad maker is said to have "demanded" suppliers cut their prices, as Apple believes they are due to cash in on surging sales of the touschreen tablet. According to DigiTimes, component makers reportedly expect Apple to ask for more cuts again in the third quarter of 2011.



"Since Apple's tablet PC shipments are expected to grow 70% sequentially to eight million units in the second quarter, significantly benefiting related upstream component suppliers, Apple has demand(ed) its suppliers to provide cuts in return," the report said, citing the Chinese-language Economic Daily News.



Apple has reportedly made the demands to companies that supply it with printed circuit boards, optical components, battery modules and touch panels. It wants quotes for the second quarter of 2011 to be cut by 10 percent.



Earlier this month, Apple revealed that total iPad sales had reached 25 million in just 14 months. That total also suggested that the company is on pace to exceed sales of 8 million iPad 2 units this quarter.







In its last fiscal quarter, Apple reported sales of 4.69 million iPads, a number that came in lower than Wall Street expectations of the iPad 2 launch. But the company's chief operating officer, Tim Cook, admitted that his company was struggling to meet demand, characterizing the situation as "the mother of all backlogs."



In March, it was suggested that supply issues for touchscreens could result in a higher cost to Apple for components. The touch display on the new iPad 2 was estimated to cost Apple $127 for each device, an increase of more than $30 from the first-generation iPad.
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Comments

  • Reply 1 of 75
    frugalityfrugality Posts: 410member
    greed



    gotta love it....
  • Reply 2 of 75
    801801 Posts: 271member
    Is this a prolog to the Cook era? This is his area now.
  • Reply 3 of 75
    ivladivlad Posts: 740member
    Quote:
    Originally Posted by frugality View Post


    greed



    gotta love it....



    yeah those factories have no soul, trying to make as much as possible of these iPads I tell you!
  • Reply 4 of 75
    mactacmactac Posts: 315member
    Apple has to try to maximize savings.

    It's not like Apple has $70 billion sitting around or anything. Oh, wait.



    Does anyone think Apple will drop the price 3%?
  • Reply 5 of 75
    bagmanbagman Posts: 349member
    Last time I checked my econ book, it said that when demand outstrips supply, the cost of the items go up accordingly. Only someone as strong as Apple can attempt to upend that truism, and have enough clout to back it up. Only Apple, having alternative suppliers, will keep this supply-side price creep in check (hopefully).



    Also, keeping other suppliers working (secretly) on the next iterations of the components, keeps the suppliers from raising the price through the roof, lest they get completely frozen out of the next great products.
  • Reply 6 of 75
    charlitunacharlituna Posts: 7,215member
    Quote:
    Originally Posted by frugality View Post


    greed



    gotta love it....



    How do you know that Apple is demanding this now, in violation of signed contracts.



    As opposed to it being in the contract from day one and there's really no 'demands' at all.



    You don't.



    It's not uncommon for prices to be dependent on the volume being bought so it is very possible that the high demand has increased order volumes and invoked a preset drop in per unit pricing that both sides agreed on when they signed.
  • Reply 7 of 75
    joseph ljoseph l Posts: 197member
    Quote:
    Originally Posted by AppleInsider View Post


    The iPad maker is said to have "demanded" suppliers cut their prices,



    Samsung to Apple: "Go pound sand. Try to sell more iPads without our parts! Good Luck!"
  • Reply 8 of 75
    SpamSandwichSpamSandwich Posts: 31,131member
    Sounds purely speculative. Although if true, I'm fine with it.
  • Reply 9 of 75
    joseph ljoseph l Posts: 197member
    Quote:
    Originally Posted by charlituna View Post


    it is very possible that the high demand has increased order volumes and invoked a preset drop in per unit pricing that both sides agreed on when they signed.



    If it had already been agreed upon, there would be no need for Apple to make a new "demand". Therefore, it seems unlikely that the price reduction was already agreed to. If it had, this would be a job for the guys in accounting.
  • Reply 10 of 75
    hiker275hiker275 Posts: 53member
    Sure, I would have preferred my iPad to have only cost $99.... or even $299... but I was okay with a refurbished iPad 1 for $349 and I figure I'll upgrade to an iPad 3 _ 3g for $629 when it comes out. Maybe rather than demanding lower prices from the suppliers, they could work on improving the quality of work conditions & wages by 10%.



    But hey... doing something good for humanity like that is too much like communism... and corporations value only about 1 thing. Money.
  • Reply 11 of 75
    Quote:
    Originally Posted by Bagman View Post


    Last time I checked my econ book, it said that when demand outstrips supply, the cost of the items go up accordingly. Only someone as strong as Apple can attempt to upend that truism, and have enough clout to back it up. Only Apple, having alternative suppliers, will keep this supply-side price creep in check (hopefully).



    I think most posters aren't factoring in the concept of quantity discounts. In most businesses I know, the more you order, the less an item costs. Since the iPad II is selling like hotcakes, Apple is going back to their vendors and asking for price decreases based on their increased purchases. This doesn't seem unusual to me.
  • Reply 12 of 75
    paxmanpaxman Posts: 4,595member
    So when demand tails off I guess they will happily pay more?

    But seriously, they must have made price agreements based on volume projections and I guess the actual demand took them by surprise.
  • Reply 13 of 75
    This is a pretty standard procedure in business. There are companies that squeeze manufacturers to the point where they aren't making any money.



    Sears, in its heyday, used to go to a small manufacturing company and say we need 500,000 widgits, what's the price? Say Ok, let the small company spend a ton of money buying new equipment, expanding the plant, hiring people, etc. and then come back the next year with a "suggested new price!" Usually, well below the original price. The small manufacturer was forced to accept it and basically was just wearing out their "new" equipment while Sears was sitting pretty.



    Walmart has a similar reputation.
  • Reply 14 of 75
    bagmanbagman Posts: 349member
    Quote:
    Originally Posted by sportyguy209 View Post


    I think most posters aren't factoring in the concept of quantity discounts. In most businesses I know, the more you order, the less an item costs. Since the iPad II is selling like hotcakes, Apple is going back to their vendors and asking for price decreases based on their increased purchases. This doesn't seem unusual to me.



    Yes, I recognize that volume discounts are at play here, and certainly make supply and demand projections difficult. Luckily, the volume is high enough, and alternative suppliers are available elsewhere, to make such cost reductions possible - for if you are the only supplier (and can foresee being so for a long time) you can refuse such requests to reduce your price, regardless of the volume supplied. Hopefully, such monopolistic suppliers are few, and Apple diversified enough, to keep things in reasonable check.



    Also, as I mentioned earlier, what supplier wants to get on the wrong side of Apple, and get frozen out forever on future products? They might have to turn to (god forbid) Microsoft (aka Nokia), RIM, HP, or whoever.
  • Reply 15 of 75
    joseph ljoseph l Posts: 197member
    Quote:
    Originally Posted by christopher126 View Post


    This is a pretty standard procedure in business. There are companies that squeeze manufacturers to the point where they aren't making any money.



    Sears, in its heyday, used to go to a small manufacturing company and say we need 500,000 widgits, what's the price? Say Ok, let the small company spend a ton of money buying new equipment, expanding the plant, hiring people, etc. and then come back the next year with a "suggested new price!" Usually, well below the original price. The small manufacturer was forced to accept it and basically was just wearing out their "new" equipment while Sears was sitting pretty.



    Walmart has a similar reputation.



    And now Apple? Great...
  • Reply 16 of 75
    inklinginkling Posts: 731member
    In the mid-nineties I knew someone in parts acquisition at Boeing who was given a miserable task. Thinking perhaps like Apple is now thinking, Boeing ordered her to call up suppliers and tell them that Boeing would now be paying them 10% less for their products. Boeing's upper management no doubt thought it was being "oh so clever."



    Fast forward a decade and the business news was filled with Boeing's problems getting parts from their suppliers on time and up-to-spec. That's one of the key reasons why the 787 is being delayed for two years and more.



    Did those suppliers wait for the right moment to extract their revenge on Boeing? Perhaps. But it is also true that by cutting their income, Boeing also made it harder for those companies to upgrade their equipment and retain talented employees. Boeing was simply reaping what it had sown a decade earlier. And yes, when Boeing's woes began to multiply, there was probably little sympathy among those tightly squeezed suppliers--no good will it could call on.



    Much the same could happen with Apple's suppliers and assemblers. Keep in mind that there is often no decline in costs as demand rises. Increased demand can mean needing to build new factories and train new workers. Perhaps Apple should be paying more rather than less. It's growing muscle hasn't been matched by a larger heart.



    I've said this before in similar contexts, but I'll say it again. Success is as much a test of character as adversity. If you've always been greedy and a bully at heart, getting richer and more powerful will make that all the more obvious. Something has been going badly wrong at Apple since its market share began to grow rapidly half a decade ago. This is one of the unfortunate symptoms.



    --Michael W. Perry, author of Untangling Tolkien, Seattle
  • Reply 17 of 75
    ghostface147ghostface147 Posts: 1,629member
    I'd tell them no. I'd be like what you want our stuff, pay our prices. Taking your business elsewhere? Ok, let me know how their inferior products work, like light leakage.
  • Reply 18 of 75
    dickprinterdickprinter Posts: 1,060member
    Quote:
    Originally Posted by sportyguy209 View Post


    I think most posters aren't factoring in the concept of quantity discounts. In most businesses I know, the more you order, the less an item costs. Since the iPad II is selling like hotcakes, Apple is going back to their vendors and asking for price decreases based on their increased purchases. This doesn't seem unusual to me.





    Once in a while someone who actually thinks posts to this forum.



    What a majority of the others don't understand is that a public company has a fiduciary duty to maximize return on their shareholder's investment. What Apple is doing is common business practice.



    It's called negotiation. A big player like Apple can throw their weight around a little bit. There are a lot of suppliers poised to make a lot of money off of Apple's success.



    Thank you, Sportyguy
  • Reply 19 of 75
    addicted44addicted44 Posts: 822member
    Quote:
    Originally Posted by Joseph L View Post


    If it had already been agreed upon, there would be no need for Apple to make a new "demand". Therefore, it seems unlikely that the price reduction was already agreed to. If it had, this would be a job for the guys in accounting.



    Its a new contract. How hard is that to understand?
  • Reply 20 of 75
    czech44czech44 Posts: 11member
    Quote:
    Originally Posted by Bagman View Post


    Last time I checked my econ book, it said that when demand outstrips supply, the cost of the items go up accordingly. Only someone as strong as Apple can attempt to upend that truism, and have enough clout to back it up. Only Apple, having alternative suppliers, will keep this supply-side price creep in check (hopefully).



    Also, keeping other suppliers working (secretly) on the next iterations of the components, keeps the suppliers from raising the price through the roof, lest they get completely frozen out of the next great products.



    how it really works is that when there is more products purchased suppliers can give you lover price as in the large amount they still make noticable profit. its like when you go to a currency exchange that is not trying to rip you off a shitload, if you exchange 100 euro the rate will not be the greatest, but when you echange 12000 euro, the rate will be really good because on that amount the currency exchange place can still make good profit...
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