Apple Apparently Getting the Most Out of iPhone 5 Profits; Major Supply Chain Partners Attempting to Renegotiate Pricing Terms

16 Oct

Lately, the news has been dominated with Apple’s major supply chain problems, with much attention being directed towards issues such as the inhumane work conditions, the alleged work strikes, and the various product and component shortages. While questionable company policy and negligence are certain to be pointed at by the media, there is little doubt that the Cupertino company’s pressure to live up to the new iPhone hype, along with its constant, sometimes unreasonable, demand for assembled iPhone 5 units, also played a huge part in exacerbating the supply chain problem.

According to a recent UDN report, Foxconn and Foxlink are allegedly taking the initiative to renegotiate the supply pricing terms with Apple, possibly due to the negative media attention towards the inhumane workers’ treatment and wages. It is reported that the Cupertino tech giant gains approximately $200 USD per iPhone bought, which represents close to a 50% profit margin for the company. Using the 16GB iPhone 5 as an example, the suppliers, on the other hand, have profit margins of reportedly less than 1%. UDN attributed the lack of supplier revenues to the amount of overtime payments made—many during the Chinese October national holiday— and increased amounts of “negative” investments. Another crucial factor pointed to is Apple’s tight deadlines, which essentially made the increasing demands for assembled iPhone 5 units more difficult to swallow. Foxlink allegedly had to give up a significant amount of product orders just to be able to meet the Cupertino giant’s demands.

With the above factors taken into considerations, UDN suggests that the new, renegotiated prices may rise by at least 5%. It is unclear at the moment how the final discussions amongst the Cupertino company and the suppliers will turn out, although, seeing how Apple representatives are now making an effort to visit the work sites, the company is at some point likely to be pressured into a compromise of some sort.

Another supply partner believed to be in line to renegotiate prices with Apple is Largan, which provides the camera lenses to the Cupertino company. The other known major suppliers include the Toshiba (NAND Flash), TSMC (chip component), and GSEO (additional lens component).

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