With the launch of new products just months away, reports suggest Apple Inc. is somewhat uncertain about the strength of its supply chain execution.
Undoubtedly, Apple executives have a lot to think about. Unlike those years when Apple introduced the first iPad or launched its first iPhone, the company now has formidable competition from Samsung Electronics Co. and there's a growing tidal wave of research that indicates Apple is losing ground in some areas of the market.
Counterpoint Technology Market Research's latest analysis, as reported on Bloomberg News, for example, has found that monthly global smartphone data for May shows Samsung in first place in the smartphone market of phones priced above the $400 price point. Samsung has a 47 percent market share, surpassing Apple in this category.
The research also shows that the combined sales of the new Galaxy S4 and the previous Galaxy S III and Note II were the main cause of the rise in market share. Additionally, end-of-life-cycle Galaxy S III sales were strong, and the Note II was priced competitively in China and other global markets.
Samsung's secondary market strategy could be part of the reason why Apple has embarked on its own plan, according to another Bloomberg report, to launch an iPhone trade-in program. By enticing consumers to turn in their old iPhone models for an iPhone 5, Apple hopes to ignite sales of their new phones while making money on older products.
The move represents a significant shift and a strategy focused on the refurbished iPhone market, which is an area Apple has paid little attention to in the past.
There are other parts of the supply chain that Apple feels are cause for concern. Foxconn Technology Group, the dominant contract manufacturer for Apple's iPhones and iPads, now has healthy competition from Pegatron Corp., a Taiwanese electronics manufacturing company that will be the primary assembler of low-cost iPhones expected later this year.
According to the Wall Street Journal, Apple wants to balance its supply chain and diversify its manufacturing options. This move suggests that Apple is no longer confident in Foxconn's ability to deliver products in the way Apple has become accustomed to over the years. Certainly, this view gains greater currency in the wake of recent reports that Apple returned between five to eight million iPhones to Foxconn because the contract manufacturer made products that were dysfunctional and had flaws in appearance.
As Apple prepares to introduce its low-cost phone and other products onto the global market, the company can ill afford to have a weak link in its supply chain, which will be under intense pressure to meet supply and demand commitments.
Time will tell
We can only wait to see if Apple's supply chain adjustments will have any positive impact on sales of new products, especially in China, where Apple hopes to further boost its sales and grow market share. Even in China, Apple has had to adjust its supply chain strategy.
In the aftermath of recent criticism from Chinese state-run press regarding what Chinese commentators described as Apple's unfair warranty policies, the company issued an unusual letter of apology, and outlined steps to improve its warranty and customer service policies in China.
It takes a lot of forethought to make adjustments to a supply chain, and part of that planning involves a recognition that weaknesses exist in various parts of the supply network.
Apple is facing a challenge from a competitor, Samsung, whose products have similar features, are priced competitively in the marketplace, and whose ability to compete with an equally efficient supply chain strategy has been demonstrated.
Apple's executives like CEO Tim Cook understand this reality. They probably also recognize that even while making adjustments to their supply chain, Apple may not realize the success it is striving for.