New Apple CEO John Ternus will face two critical decisions soon after taking the helm, says new Financial Times report.
First, how to respond to a massive increase in memory prices, with Apple’s RAM costs increasing by more than 400% by next year. Second, how to shape the company’s manufacturing plans in China, India and the United States…
Memory costs will increase by more than 400%
Apple faces a whole new world when it comes to purchasing memory for its devices. The company is used to being such a dominant player in the market that it can essentially dictate terms to suppliers. With massive memory demand for AI servers, this is no longer the case.
THE Financial Times claims that memory accounted for about 10% of an iPhone’s hardware cost until recently and that figure will rise to 45% by next year. This will present Ternus with an uncomfortable decision: Will Apple absorb this huge increase in costs, accepting a corresponding reduction in its margins? Or is the company raising prices at the risk of reducing sales?
This is likely to be a key question asked by analysts during tomorrow’s earnings conference call.
Manufacturing in China, India and the United States
Another key question will be how the company will reshape its manufacturing profile in China, India and the United States.
One of Tim Cook’s diplomatic victories was to stay on Trump’s right side, persuading him that making iPhones in the United States was not a realistic prospect, while giving the president public relations victories in the form of further investments in American manufacturing.
Apple has also walked a very difficult tightrope in China at times, with the government reacting aggressively to the growing shift of iPhone assembly from China to India. A report published in February indicated that China was deliberately hindering iPhone production in India in three different ways.
The report states that Ternus will need to make supply chain decisions that will impact the business for many years to come.
The pressures come as Apple reconsiders where it makes its products, how it secures components and when it launches new devices — decisions that will reshape its business in the years to come.
“US investment will be a key driver of Apple’s strategy in the years to come,” said JPMorgan’s Samik Chatterjee. “For John Ternus, the question is: how do we position the company to be on the right side of Washington and Beijing?
Take from 9to5Mac
Tim Cook appears to have volunteered for the role of policymaker as his title has been changed from CEO to executive chairman. It is Cook rather than Ternus who will likely continue the delicate negotiations with the US and Chinese administrations.
Cook, using his diplomatic skills and making unpopular decisions, will allow Ternus to focus more on Apple products.
It will also be interesting to hear how the company will answer questions from tomorrow’s analysts. Cutting margins will likely be unpopular with investors, while increasing prices will be just as unpopular with customers.
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