Analyst: Apple is Forcing Higher Margins by Renegotiating with Suppliers

Image of computer, tablet, and smartphoneEvidence suggests that computer and mobile device giant Apple Inc. (NASDAQ:AAPL) is squeezing its suppliers by paying lower prices for their goods and services, according to a new report.

Analysts Amit Daryanani and Jeriel Ong at RBC Capital Markets recently sent a note to clients describing the phenomenon, which includes data from several Apple suppliers. Based in Taiwan, U.S., U.K., and elsewhere, many of these firms look to be feeling pressure from Apple to deliver their wares at less profitable price points.

Some of these companies make microchips, integrated circuits, and other components, while others assemble pieces into completed products. The products they work on range from iPhones to iPads to Mac computers — most of Apple’s product line. Here’s a table of what RBC found (pay attention to the red highlighted areas):

apple-suppliers-squeeze

Out of the 11 companies the firm studied, 9 of them saw lower gross margins than originally expected. That’s pretty strong evidence that Apple has done some negotiating behind the scenes to get lower prices and thereby boost its own margins, which fell to 38% from 39% year-over-year in the past quarter.

“We think Apple has been pushing for price discounts from multiple suppliers as a way to dampen foreign exchange headwinds Apple is facing on their own profit and loss statement heading into the iPhone 7,” say the analysts. Last month, a similar report suggested that Apple is pitting companies against each other to get lower prices.

As the evidence mounts that Apple might have some gross margin upside in upcoming quarters, the timing of the iPhone 7 launch this fall is probably no coincidence. The company’s margins have fallen mainly as a result of currency headwinds, and Apple is so powerful that it can simply pass the effects onto its suppliers rather than shoulder the burden itself.

It’s good to be the king.

Apple shares were mostly flat in premarket trading Wednesday at $108.80 per share. APPL has risen 3.37% year-to-date, versus a 7% gain in the benchmark S&P 500 index in the same period.

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