Thu, May 03, 2018 - Page 12 News List

What is good for Apple is not always best for suppliers

Bloomberg

Apple Inc turned in a strong quarter with revenue, profit and forecasts all coming in ahead of analysts’ estimates, but that is not necessarily good for the hundreds of iPhone suppliers around the world.

Apple’s better-than-expected results stemmed in part from the sale of ancillary goodies from games to cloud storage, but none of those benefit hardware partners such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Hon Hai Precision Industry Co (鴻海精密), whose fortunes are more closely tied to iPhone unit sales, which rose just 2.9 percent in the first quarter.

Even a slight slowdown in iPhone sales could mean a huge hit to those suppliers. It is the price of participating in Apple’s production chain: Companies build expensive factories in advance of gadget cycles so even modest misses hammer profits.

Take Pegatron Corp (和碩), which assembles the iPhone 8 and ramped up capacity in anticipation of a surge in business last year. A subsequent shortfall in demand led to lower utilization rates across its factories and operating margins last year almost halved to 1.61 percent.

Pegatron and Hon Hai — Apple’s principal assemblers — reported net income falls last year, even as their biggest customer racked up record profits.

“Apple is benefiting from increased average selling price, yet volume, which is key to suppliers’ financials, is only growing a little,” Fubon Securities Co (富邦證券) analyst Arthur Liao (廖顯毅) said.

Apple CEO Tim Cook hinted at additional sources of growth in terms of both geographical areas and product categories, saying that India is an attractive new market for iPhones, similar to China several years ago.

Even if Apple does make headway in India or China — still its largest international market — there is no guarantee its hardware partners would share in the spoils, given the US company’s reputation for squeezing suppliers to preserve its own margins.

It has even in recent years begun cutting off suppliers such as Imagination Technologies Group PLC in favor of making its own components, such as chips.

TSMC shares fell 1.8 percent and Hon Hai shares slid 1.3 percent, while Pegatron rose 2.2 percent in Taipei trading yesterday.

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