Apple paid a premium to bring additional capacity online quickly from their suppliers. They now want that premium back since they have expanded the market for their supplier's devices. They started out absorbing the margin, and now want to make their profit. Fair game.
That is an amazing claim. Never heard that one before.
Got any evidence that Apple paid a premium for iPad parts? As in, more than normal market price?
OK I read all the comments here and not one mentions that Asian manufacturing play by their own rules in business. They are much shrewder in negotiating price than western business. If they are ready to deal at x prices, they already built in the discount beforehand. They expect you to ask for it and if you don't, they see that as weakness. They respect strength (not greed) in negotiation. Apple is playing the Asian markets as an Asian would.
The first thing I thought of is that since Apple's profit margin is almost always a flat 30% regardless of product type or availability.
My estimate from their last published numbers would be it is more like 45%, assuming you're talking gross margin. That's after stripping out the iTunes revenue which has tiny margins, maybe 3% tops.
Anyway this whole debate is so ludicrous, Apple is an american public company. It has a fiduciary duty to its shareholders to make money, so if it thinks it can get lower prices out of its suppliers without screwing up its long term relationships - it will, and it should.
Apple needs to maintain certain profit margin or better. Otherwise Apple stock will tank. Apple also needs to bring better products to market without raising the price. How do you think Apple can do to satisfy these two conditions?
Manufacturers aren't simply going to take this from their bottom line. Quality will suffer, or worker compensation or safety, or environmental responsibility, or all of the above. A 10% cut just "because I demand it" is huge. Productivity does not go up that fast.
Apple has been prepaying for parts in the billions of $s - that is a premium in itself since it gives the supplier 60-180 days extra with the cash to invest, make a return on etc.
Maybe Apple wants to be able to make the iPad cheaper. There are now many Android tablets entering the marke,t as well as RIMs and HP's offerings. Most of these tablets match the iPad's price with some now going below (Toshiba, I think). Apple made it perfectly clear when they released the iPad that they were going to destroy the competition with price. The only way they can lower their prices and maintain margins is to reduce the cost of manufacture. I just see this as Apple staying ahead of the competition in a market that is fast becoming saturated with products.
Difficult to cite even the merest scintilla of evidence that it is true.
As opposed to all the evidence on offer that Apple is "demanding" anything? How do you figure that works-- someone from Apple gets on the phone and starts screaming at a supplier to cut prices or Apple will walk away, thereby blowing a huge whole in the critical iPad 2 supply chain?
Assuming this story has any basis in reality at all, it's easy to imagine a lot of scenarios wherein "demanding" is simply spin designed to play into ambient animosity towards Apple.
For instance, Apple may be attempting to renegotiate component prices based on increased orders. That would typically be called "doing business", but that doesn't make for a nice click-bait story.
Or Apple may have had clauses in their original contracts that allow for reopening pricing negotiations at certain thresholds. Or they may be guaranteeing certain levels of purchasing, for which they expect to receive discounts.
We have no way of knowing, of course, but this kind of story doesn't provide us with any basis to suspect Apple is doing anything particularly noteworthy or particularly unpleasant.
Manufacturers aren't simply going to take this from their bottom line. Quality will suffer, or worker compensation or safety, or environmental responsibility, or all of the above. A 10% cut just "because I demand it" is huge. Productivity does not go up that fast.
The reason that this isn't generally noticeable in the cost of a new PC is that PCs have both cost deflation and spec-inflation at the same time, so the two balance out. Devices like the iPhone or iPad are identical components throughout their lives so the cost deflation has full force.
This is why games consoles can sell at a loss early in their cycle and at a huge profit later - even at a lower cost.
This is why games consoles can sell at a loss early in their cycle and at a huge profit later - even at a lower cost.
Procesor power costs is not the same as unit costs. The CPU in the iPad 2 has two cores to the iPad's 1. That is already a 50% drop in cost per power.
If you look at the chart for screen prices, you will note a flattening after the initial dramatic drops. 10" screens have been in volume production for many years, used in netbooks. The iPad uses IPS screens, which are new in that format, but IPS itself is quite old as well.
DRAM also drops per MB, but not nearly so quickly for unit prices which are actually quite stable. It's simply that density doubles every couple of years.
Bear in mind also that many prices have risen in the past couple of years, since the bottom of the market crisis. Commodity prices are all well off their 2009 lows. Labor prices are rising in China, etc.
All I am saying is, cheap is never free. Somewhere, there will be a cost.
I once worked as an estimator for an electronics contract manufacturer. Pricing is based on volume, the more you order the lower the price. Even in the middle of a contract if volume goes up significantly a customer will ask for a good faith change in price.
Procesor power costs is not the same as unit costs. The CPU in the iPad 2 has two cores to the iPad's 1. That is already a 50% drop in cost per power.
Yes but even if you look on it on a per processor basis it's still over 10% per year for the same model, because old models are made on an old fabrication process and the premium models are all moved to the new shiniest lines on the shiniest fabs.
Quote:
If you look at the chart for screen prices, you will note a flattening after the initial dramatic drops. 10" screens have been in volume production for many years, used in netbooks. The iPad uses IPS screens, which are new in that format, but IPS itself is quite old as well.
10inch screens in netbooks didn't have that aspect ratio, they're almost all widescreen. I'm willing to bet that the iPad was the first platform to use that screen in volume.
Quote:
DRAM also drops per MB, but not nearly so quickly for unit prices which are actually quite stable. It's simply that density doubles every couple of years.
Again, even on a chip basis it still drops considerably, certainly by more than 10% per annum.
Quote:
Bear in mind also that many prices have risen in the past couple of years, since the bottom of the market crisis. Commodity prices are all well off their 2009 lows. Labor prices are rising in China, etc.
All true but none of those factors have seriously impacted tech component deflation because it is mostly capital intensive and not material or labour intensive. Interest rates are extremely low right now, for $, which most Asian markets peg to.
Quote:
All I am saying is, cheap is never free. Somewhere, there will be a cost.
Tech gets cheaper and better every single year, it has done since it began as a measurable industry and it will for at least a few more decades - aside from a few crunches due to supply issues. 10% is not a lot by tech deflation figures - even on a per unit basis. It's certainly not call for people to start tearing their hair out on web forums and complain that Apple is stealing bread from babies mouths.
How about apple takes 10% off the iPad and all their other products? Or better yet, give their employees a 10% raise to help with the Gas crime, i mean gas prices.
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.
I always love it when people post stuff like this. As if the company's board of directors has no choice in the matter. "Don't blame us, it's our fiduciary responsibility." Can you please point to the law or SEC regulation that says this?
Yes, it's the board's responsibility to make decisions in the best interest of the company. But nowhere does it say that the "best interest" = maximizing profits for shareholders. If the board decides it is, that's fine. Nothing wrong with that. But don't act as if it's anything other than greed, either on the part of the board or the shareholders.
Don't get me wrong, making money is good. And there is nothing wrong with wanting to make lots of money. Just don't pretend is some sort of mandatory "duty" imposed by law or regulation. It's a decision made by the company, perhaps compelled by it's stockholders (on the threat of kicking out it's board members). Nothing more, nothing less. There is no outside force compelling this so-called "fiduciary responsibility".
Tech gets cheaper and better every single year, it has done since it began as a measurable industry and it will for at least a few more decades - aside from a few crunches due to supply issues. 10% is not a lot by tech deflation figures - even on a per unit basis. It's certainly not call for people to start tearing their hair out on web forums and complain that Apple is stealing bread from babies mouths.
Cheaper, yes. Better, not really. A tremendous amount of junk is being sold now for low prices. Poorly built laptops and netbooks are legion. Practically disposable.
The electronic components do get cheaper, though not as quickly on a unit basis as is generally believed. But the physical device does not. This is why machines that have excellent specs by the standards of a few years ago feel like they will fall apart in two minutes. It's why the 15" MacBook ASP has barely changed in many years. It's why the Mac Mini is actually more expensive than it was with the earlier model.
A well built machine, with a proper case, mechanically good keyboard and components, and so on, will not deflate substantially through time. Apple builds good hardware (could be more robust, but clearly the best of the industry), so unit prices cannot really drop so easily.
I am not tearing my hair out, but Apple has had unnecessary quality problems, such as poor thermal paste application, for years. A confrontational relationship with suppliers is not often associated with quality. Japanese automakers for example worked cooperatively with their suppliers, while US manufacturers used a low-bid model. Who was more competitive?
But nowhere does it say that the "best interest" = maximizing profits for shareholders.
Well, it sort of does, actually.
The key is the timescale. When people pull out the "fiduciary responsibility" card, they are often justifying short-term gains.
It's easy to maximize short-term profits. Cut corners, squeeze suppliers, cheat customers with poor service, and so on. But all of these will destroy a brand in the long run. Blindly cutting costs is not management, and it is not responsibility, fiduciary or otherwise.
It's hard to say if this particular instance qualifies as blind cost-cutting. I hope not. I just think people should not be so quick to applaud it. Let's see what it results in a couple of years down the road.
Cheaper, yes. Better, not really. A tremendous amount of junk is being sold now for low prices. Poorly built laptops and netbooks are legion. Practically disposable.
The electronic components do get cheaper, though not as quickly on a unit basis as is generally believed.
This entire discussion is about components, so cheaper and better would be the expectation. As for the whole. As for price per unit not decaying fast, it's hard to get good data because most of it is behind paywalls at market research firms but the few times I've been able to track a components price over a year or two 10% drops YoY have been a minimum except just before a product goes into end of life scarcity.
I'll keep looking to see if I can find any decent hard data though.
Quote:
A confrontational relationship with suppliers is not often associated with quality. Japanese automakers for example worked cooperatively with their suppliers, while US manufacturers used a low-bid model. Who was more competitive?
I'm pretty sure that Nissan did the same thing under Carlos Ghosn's reign of terror. In any case the car market and the IT market are utterly and profoundly different. Car makers have LOTS of small and medium sized suppliers mostly supplying small things that are not terribly capital intensive, and are generally more driven by material prices or labour prices.
Apple have a very small number of very big suppliers supplying large numbers of things that are very capital intensive indeed. The products being supplied are essentially commoditized and both parties know what the going rate is, what the profit margins are and how much the supplier needs to make to invest in the next generation of plant.
I'm pretty sure that Samsung can stick up for itself.
Edit: Managed to find 2010s data for Dram all modules tracked in this graph dropped by over 10% - it's so frustrating knowing that all the data is sitting on dramexchange.com and I can't bleeding access it
When we used to hear stories like this about Microsoft, Mac fans would call it bullying.
Now Apple is the new Microsoft, and fans give 'em a free pass....
LOL
Microsoft is primarily a software company so exactly when were we supposed to read about them bullying vendors? Last time I checked a majority of their profits came from their own programmers. Sure the Xbox and peripherals are branded but I don't remember reading anything about IBM getting "bullied" over pricing.
Comments
Apple paid a premium to bring additional capacity online quickly from their suppliers. They now want that premium back since they have expanded the market for their supplier's devices. They started out absorbing the margin, and now want to make their profit. Fair game.
That is an amazing claim. Never heard that one before.
Got any evidence that Apple paid a premium for iPad parts? As in, more than normal market price?
Hard to believe.
The first thing I thought of is that since Apple's profit margin is almost always a flat 30% regardless of product type or availability.
My estimate from their last published numbers would be it is more like 45%, assuming you're talking gross margin. That's after stripping out the iTunes revenue which has tiny margins, maybe 3% tops.
Anyway this whole debate is so ludicrous, Apple is an american public company. It has a fiduciary duty to its shareholders to make money, so if it thinks it can get lower prices out of its suppliers without screwing up its long term relationships - it will, and it should.
That is an amazing claim. Never heard that one before.
Got any evidence that Apple paid a premium for iPad parts? As in, more than normal market price?
Hard to believe.
http://www.bangobang.com/2011/01/app...overloads.html
Apple is overbidding competitors to secure a larger portion of Samsung Semiconductor's production capacity.
ie. they are paying a premium to secure supply for some components.
That is an amazing claim. Never heard that one before.
Got any evidence that Apple paid a premium for iPad parts? As in, more than normal market price?
Hard to believe.
No it isn't. As well as the news that Apple was bidding up prices on components to lock out competitors (esp. after 3/11),
http://www.appleinsider.com/articles...el_supply.html
Apple has been prepaying for parts in the billions of $s - that is a premium in itself since it gives the supplier 60-180 days extra with the cash to invest, make a return on etc.
Easy to understand.
Difficult to cite even the merest scintilla of evidence that it is true.
As opposed to all the evidence on offer that Apple is "demanding" anything? How do you figure that works-- someone from Apple gets on the phone and starts screaming at a supplier to cut prices or Apple will walk away, thereby blowing a huge whole in the critical iPad 2 supply chain?
Assuming this story has any basis in reality at all, it's easy to imagine a lot of scenarios wherein "demanding" is simply spin designed to play into ambient animosity towards Apple.
For instance, Apple may be attempting to renegotiate component prices based on increased orders. That would typically be called "doing business", but that doesn't make for a nice click-bait story.
Or Apple may have had clauses in their original contracts that allow for reopening pricing negotiations at certain thresholds. Or they may be guaranteeing certain levels of purchasing, for which they expect to receive discounts.
We have no way of knowing, of course, but this kind of story doesn't provide us with any basis to suspect Apple is doing anything particularly noteworthy or particularly unpleasant.
Manufacturers aren't simply going to take this from their bottom line. Quality will suffer, or worker compensation or safety, or environmental responsibility, or all of the above. A 10% cut just "because I demand it" is huge. Productivity does not go up that fast.
NAND's price per gigabyte declines faster, at an average of 50% per year.
DRAM drops at 30% per year (same link)
LCD panels can drop faster than that
Processor power prices drops at insane rates
The reason that this isn't generally noticeable in the cost of a new PC is that PCs have both cost deflation and spec-inflation at the same time, so the two balance out. Devices like the iPhone or iPad are identical components throughout their lives so the cost deflation has full force.
This is why games consoles can sell at a loss early in their cycle and at a huge profit later - even at a lower cost.
NAND's price per gigabyte declines faster, at an average of 50% per year.
DRAM drops at 30% per year (same link)
LCD panels can drop faster than that
Processor power prices drops at insane rates
This is why games consoles can sell at a loss early in their cycle and at a huge profit later - even at a lower cost.
Procesor power costs is not the same as unit costs. The CPU in the iPad 2 has two cores to the iPad's 1. That is already a 50% drop in cost per power.
If you look at the chart for screen prices, you will note a flattening after the initial dramatic drops. 10" screens have been in volume production for many years, used in netbooks. The iPad uses IPS screens, which are new in that format, but IPS itself is quite old as well.
DRAM also drops per MB, but not nearly so quickly for unit prices which are actually quite stable. It's simply that density doubles every couple of years.
Bear in mind also that many prices have risen in the past couple of years, since the bottom of the market crisis. Commodity prices are all well off their 2009 lows. Labor prices are rising in China, etc.
All I am saying is, cheap is never free. Somewhere, there will be a cost.
There is nothing unusual here
Procesor power costs is not the same as unit costs. The CPU in the iPad 2 has two cores to the iPad's 1. That is already a 50% drop in cost per power.
Yes but even if you look on it on a per processor basis it's still over 10% per year for the same model, because old models are made on an old fabrication process and the premium models are all moved to the new shiniest lines on the shiniest fabs.
If you look at the chart for screen prices, you will note a flattening after the initial dramatic drops. 10" screens have been in volume production for many years, used in netbooks. The iPad uses IPS screens, which are new in that format, but IPS itself is quite old as well.
10inch screens in netbooks didn't have that aspect ratio, they're almost all widescreen. I'm willing to bet that the iPad was the first platform to use that screen in volume.
DRAM also drops per MB, but not nearly so quickly for unit prices which are actually quite stable. It's simply that density doubles every couple of years.
Again, even on a chip basis it still drops considerably, certainly by more than 10% per annum.
Bear in mind also that many prices have risen in the past couple of years, since the bottom of the market crisis. Commodity prices are all well off their 2009 lows. Labor prices are rising in China, etc.
All true but none of those factors have seriously impacted tech component deflation because it is mostly capital intensive and not material or labour intensive. Interest rates are extremely low right now, for $, which most Asian markets peg to.
All I am saying is, cheap is never free. Somewhere, there will be a cost.
Tech gets cheaper and better every single year, it has done since it began as a measurable industry and it will for at least a few more decades - aside from a few crunches due to supply issues. 10% is not a lot by tech deflation figures - even on a per unit basis. It's certainly not call for people to start tearing their hair out on web forums and complain that Apple is stealing bread from babies mouths.
Apple is bundling the browser to the OS?
uh!?
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.
I always love it when people post stuff like this. As if the company's board of directors has no choice in the matter. "Don't blame us, it's our fiduciary responsibility." Can you please point to the law or SEC regulation that says this?
Yes, it's the board's responsibility to make decisions in the best interest of the company. But nowhere does it say that the "best interest" = maximizing profits for shareholders. If the board decides it is, that's fine. Nothing wrong with that. But don't act as if it's anything other than greed, either on the part of the board or the shareholders.
Don't get me wrong, making money is good. And there is nothing wrong with wanting to make lots of money. Just don't pretend is some sort of mandatory "duty" imposed by law or regulation. It's a decision made by the company, perhaps compelled by it's stockholders (on the threat of kicking out it's board members). Nothing more, nothing less. There is no outside force compelling this so-called "fiduciary responsibility".
Tech gets cheaper and better every single year, it has done since it began as a measurable industry and it will for at least a few more decades - aside from a few crunches due to supply issues. 10% is not a lot by tech deflation figures - even on a per unit basis. It's certainly not call for people to start tearing their hair out on web forums and complain that Apple is stealing bread from babies mouths.
Cheaper, yes. Better, not really. A tremendous amount of junk is being sold now for low prices. Poorly built laptops and netbooks are legion. Practically disposable.
The electronic components do get cheaper, though not as quickly on a unit basis as is generally believed. But the physical device does not. This is why machines that have excellent specs by the standards of a few years ago feel like they will fall apart in two minutes. It's why the 15" MacBook ASP has barely changed in many years. It's why the Mac Mini is actually more expensive than it was with the earlier model.
A well built machine, with a proper case, mechanically good keyboard and components, and so on, will not deflate substantially through time. Apple builds good hardware (could be more robust, but clearly the best of the industry), so unit prices cannot really drop so easily.
I am not tearing my hair out, but Apple has had unnecessary quality problems, such as poor thermal paste application, for years. A confrontational relationship with suppliers is not often associated with quality. Japanese automakers for example worked cooperatively with their suppliers, while US manufacturers used a low-bid model. Who was more competitive?
But nowhere does it say that the "best interest" = maximizing profits for shareholders.
Well, it sort of does, actually.
The key is the timescale. When people pull out the "fiduciary responsibility" card, they are often justifying short-term gains.
It's easy to maximize short-term profits. Cut corners, squeeze suppliers, cheat customers with poor service, and so on. But all of these will destroy a brand in the long run. Blindly cutting costs is not management, and it is not responsibility, fiduciary or otherwise.
It's hard to say if this particular instance qualifies as blind cost-cutting. I hope not. I just think people should not be so quick to applaud it. Let's see what it results in a couple of years down the road.
Cheaper, yes. Better, not really. A tremendous amount of junk is being sold now for low prices. Poorly built laptops and netbooks are legion. Practically disposable.
The electronic components do get cheaper, though not as quickly on a unit basis as is generally believed.
This entire discussion is about components, so cheaper and better would be the expectation. As for the whole. As for price per unit not decaying fast, it's hard to get good data because most of it is behind paywalls at market research firms but the few times I've been able to track a components price over a year or two 10% drops YoY have been a minimum except just before a product goes into end of life scarcity.
I'll keep looking to see if I can find any decent hard data though.
A confrontational relationship with suppliers is not often associated with quality. Japanese automakers for example worked cooperatively with their suppliers, while US manufacturers used a low-bid model. Who was more competitive?
Ok - just googling 'Toyota Squeeze Suppliers' I immediately got this http://www.themanufacturer.com/uk/co..._CCC21_Squeeze
I'm pretty sure that Nissan did the same thing under Carlos Ghosn's reign of terror. In any case the car market and the IT market are utterly and profoundly different. Car makers have LOTS of small and medium sized suppliers mostly supplying small things that are not terribly capital intensive, and are generally more driven by material prices or labour prices.
Apple have a very small number of very big suppliers supplying large numbers of things that are very capital intensive indeed. The products being supplied are essentially commoditized and both parties know what the going rate is, what the profit margins are and how much the supplier needs to make to invest in the next generation of plant.
I'm pretty sure that Samsung can stick up for itself.
Edit: Managed to find 2010s data for Dram all modules tracked in this graph dropped by over 10% - it's so frustrating knowing that all the data is sitting on dramexchange.com and I can't bleeding access it
Well said.
When we used to hear stories like this about Microsoft, Mac fans would call it bullying.
Now Apple is the new Microsoft, and fans give 'em a free pass....
LOL
Microsoft is primarily a software company so exactly when were we supposed to read about them bullying vendors? Last time I checked a majority of their profits came from their own programmers. Sure the Xbox and peripherals are branded but I don't remember reading anything about IBM getting "bullied" over pricing.