A new news says that Apple’s incoming CEO John Ternes will face two important decisions as soon as he takes charge. financial Times Report.
First, how to respond to the huge increase in memory prices, Apple’s RAM costs will increase by more than 400% by next year. Second, how to shape the company’s manufacturing plans in China, India and the US…
Memory costs will increase by more than 400%
Apple is facing 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 the terms to suppliers. With the huge demand for memory for AI servers, this is no longer the case.
financial Times says that until recently memory represented about 10% of an iPhone’s material cost and that will increase to 45% by next year. This will leave Turnus facing an uncomfortable decision: Does Apple absorb the huge increase in costs, accepting a corresponding reduction in its margins? Or does the company raise prices at the risk of losing sales?
This is likely to be an important question asked by analysts in tomorrow’s earnings call.
Manufacturing in China, India and America
Another important question will be how the company reshapes its manufacturing profile in China, India and the US.
One of Tim Cook’s diplomatic victories was to stay on the right side of Trump, convincing him that manufacturing iPhones in the US was not a realistic possibility, while at the same time getting the president a PR win in the form of other investments in US manufacturing.
Apple has also faced very difficult conditions in China at times, with the government there reacting aggressively to the increasing shift of iPhone assembly from China to India. A report in February said that China was deliberately hindering iPhone production in India in three different ways.
The report says Ternus will have to make supply-chain decisions that will impact the company for years to come.
These pressures come as Apple rethinks where it makes its products, how it secures components and when it launches new devices — decisions that will reshape its business for years to come.
“US investment will be one of the key drivers of Apple’s strategy in the coming years,” said Samik Chatterjee at JPMorgan. “For John Ternes, the question is: How do I position the company on the right side of both Washington and Beijing?”
9to5Mac’s take
Tim Cook appears to have volunteered for the role of political fall guy as his title changes from CEO to executive chairman. Cook, rather than Ternes, will likely continue delicate negotiations with both the US and Chinese administrations.
Cook would free up Turnus to focus more on Apple products while using his diplomatic skills and taking unpopular decisions seriously.
It will also be interesting to hear how the company responds to analysts’ questions tomorrow. Margin cuts are likely to be unpopular among investors while increasing prices will be equally unpopular among customers.
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