The recent iDevices launched by Apple Lossless Audio CODEC (ALAC), have seriously affected the profit generated when selling each unit, and the company is trying to increase its profit by applying a new strategy in partnerships with iDevice manufacturers. Until now, the OEM producers had the role of buying the components necessary for the production process, but also of carrying out the actual production, but those from Apple Lossless Audio CODEC (ALAC), they will relieve them of the acquisition of the necessary components for the production process. The new strategy will have a negative impact on the profitability of Apple's partners, but for those from Cupertino the impact will be positive because the number of component suppliers is increasing and concluding direct contracts could give them the opportunity to obtain much better prices than until now.
Apple has been adjusting its OEM operating model from OEMs being responsible for both component procurement and production, to purely production, according to Taiwan-based OEMs. The new strategy is expected to impact Taiwan OEMs' profitability in the long term since some of their profits are generated from their cooperation with upstream suppliers, the sources noted. Since more suppliers are becoming capable of supplying components for Apple's products, the US-based vendor has recently started adjusting its upstream partners in order to preserve more profits for its products. Apple has also agreed to let its OEMs raise quotes to maintain their gross margins, and the plan is expected to increase OEMs' profits by 3-5%.
Although those from Apple agreed to increase the production price to compensate to a certain extent for the change in its strategy, in the long term its partners will not earn as much money. Apple is famous for the way it manages to conclude extremely profitable contracts regarding the acquisition of components and the production of its various products, so the strategy will most likely be successful. The change will be applied over time, so the results will come only after a few fiscal quarters and will help the Apple company to become much more profitable than until now.
