Apple is adjusting the OEM operating model to increase profits

[RaduTyrsina]

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It’s a known fact that Apple’s CEO, Tim Cook, is a master of the supply chain, often referred to as an operational genius. Now, according to a new report by DigiTimes, Apple’s relationship with its OEMs (original equipment manufacturers) has been changed. Apple’s manufacturing partners are no longer responsible for component procurement and production, as Apple will use its own sources to ensure a better supply of components.

Thus, Apple cuts an unnecessary intermediary which will result in an increase in profits. Max Wang and Joseph Tsai with the DigiTimes publication say the following:

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.

They also added the following info, which shows that OEMs won’t be decreasing their profits, but will actually see a slight increase:

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%. However such a change is expected to relieve OEMs from bearing component inventories and reducing their pressure.

But one thing that Tim Cook and his team can’t manage to solve is the short supply of the iPad Mini 2, which is allegedly being blamed on Sharp for its inexperience in accommodating Retina display panels to the iPad Mini size.

Source: DigiTimes