Reuters Business Report - Apple's design aesthetic: instantly recognizable, born in the Valley but built inChina.Unlike Samsung, Apple does none of its own production - relying on Asia's contract makers instead. The biggest of the bunch is Apple's old flame Hon Hai - known better by its trade name Foxconn. But it's not exactly been a fairy tale romance. Over the past four years as Apple's shares rose six-fold to briefly make it the world's most valuable company, Hon Hai - after a little spurt - has basically stayed flat. That's in part because of what you see here: Hon Hai's earnings have stayed relatively stable over the last few years versus this huge ramp-up for Apple - which has been very successful squeezing every single possible drop of cash out of its suppliers. In fact, it commands an estimated 55% margin for the iPhone alone, according to Piper Jaffray. And now there's talk Apple will turn to Hon Hai's rival Pegatron to assemble the long-rumored lower-end iPhone, with Pegatron increasing its China factory staffing by up to 40% in the second half of the year. Keeping the squeeze on its supplier's margins will be key for Apple if it does indeed go ahead with emerging-market priced iPhone. In the first quarter of 2013 Apple's overall gross margins were 37.5 percent - that's industry leading. If you compare that with Hon Hai, analysts expect it to come in at about 8.3 percent. Pegatron, with its more aggressive pricing, had even lower figures - just 3.1 percent. Hon Hai is trying to move up the value chain, by doing more profitable activities for Apple - like manufacturing the components instead of just assembling the phones. REUTERS REPORTER, JON GORDON, "But the kind of industry-topping margins enjoyed by Apple will remain a distant dream for its suppliers. That means more of the same: limited profits and cutthroat competition as they continue to compete for Apple's affections." |
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