A 20 percent reduction in Apple Inc.’s iPhone forecast as speculated in some quarters may spell relief for many procurement and purchasing professionals at small and medium OEMs and EMS providers. When demand for Apple devices are at record highs, it’s obvious component buyers at even many of its bigger rivals feel pressured; It’s not easy going against the world’s No. 1 consumer electronics vendor.
Apple has naturally gained “Most Favored Customer” status at many of its components suppliers and contract manufacturers. If a supply chain expert or components buyer from Apple is on the phone with the head of sales and marketing at a major components vendor it’s highly unlikely that person would take any other calls during the conversation. You don’t put Apple on hold.
If you are a buyer or procurement specialist at a small to medium-size OEM or electronics manufacturing services provider the news that Apple may be cutting demand for components from its suppliers – Broadcom, Nvidia and Qualcomm, as well as EMS provider Foxconn, for example – is heartwarming. Finally, you may get one of these suppliers to Apple to return your phone calls. You might even get a surprise call from one of them.
Here’s why. Apple likes to use custom components to secure competitive advantage and also ensure adequate supply. The advantages here are numerous and they’ve helped the company stand out in the crowd. The drawbacks for Apple are numerous too as the company admitted in its fiscal 2012 filing with the U.S. Securities and Exchange Commission. It noted as follows in the filing:
New products introduced by the Company often utilize custom components available from only one source. Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.
The main problems Apple would likely encounter from inadequate forecasting are limited to pressure on sales, margins, market share and equity valuation. It may have yielded some market share in smartphones and seen its capitalization slide in the last year but Apple still has a lot of these to give. So, even when Apple is cutting forecasts and trimming components demand it is still the heavyweight champion.
That’s one cool way to look at it, if you are a devotee of Apple. If you were an executive at a major supplier of custom components to Apple and suddenly receive instructions to cut production 20 percent because of slowing sales at the customer, all kinds of problems will suddenly surface; there’s strong likelihood your company may be sitting for a long time on components Apple doesn’t want and that can’t be sold to another OEM. Bummer.
If you were a buyer at Not-so-Well-Known-OEM Inc., however, life may have just tossed you a ball you can finally hit out of the ballpark. When demand slows at Apple, harried procurement and purchasing folks at smaller OEMs can expect increased attention and maybe even better pricing from component vendors. Of course, the hope is that whatever ails Apple hasn’t gone and parked itself at their doorsteps too.
DISCLAIMER: BOLAJI OJO IS EDITOR-IN-CHIEF AND PUBLISHER AT ELECTRONICS PURCHASING STRATEGIES. THE VIEWS EXPRESSED IN THIS BLOG ARE THOSE OF THE AUTHOR ALONE WHO PROMISES TO BASE HIS SOMETIMES BIASED, POSSIBLY IGNORANT, OCCASIONALLY IRRELEVANT BUT ABSOLUTELY STIMULATING THOUGHTS ON THE SUBJECTIVE INTERPRETATION OF VERIFIABLE FACTS ALONE. ANY COMMENTS SHOULD BE SENT TO THE AUTHOR AT BOLAJI.OJO@EPSNEWSONLINE.COM.