Incoming Apple CEO John Ternus is going to be facing two critical decisions soon after he takes the helm, says a new Financial Times report.
First, how to respond to a massive increase in memory prices, with Apple’s RAM costs increasing by more than 400% by next year. Second, how to shape the company’s manufacturing plans across China, India, and the US …
Apple is facing an entirely new world when it comes to buying memory for its devices. The company is used to being such a dominant player in the market that it can essentially dictate terms to suppliers. With memory in massive demand for AI servers, that’s no longer the case.
The Financial Times says that memory has until recently represented around 10% of the materials cost of an iPhone and that this will increase to as much as 45% by next year. That will leave Ternus facing an uncomfortable decision: does Apple absorb that huge increase in cost, accepting a corresponding reduction in its margins? Or does the company increase prices at the risk of reducing sales?
This is likely to be a key question asked by analysts in tomorrow’s earnings call.
Another key question will be how the company reshapes its manufacturing profile across China, India, and the US.
One of Tim Cook’s diplomatic victories was staying on the right side of Trump, persuading him that manufacturing iPhones in the US was not a realistic prospect, while at the same time giving the president PR victories in the form of other investments in US manufacturing.
Apple has also at times walked a very difficult tightrope in China, with the government there responding aggressively to the increasing shift of iPhone assembly from China to India. A report back in February said that China was deliberately hampering 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 many years ahead.
These pressures come as Apple reconsiders where it builds its products, how it secures components and when it launches new devices — decisions that will reshape its business in the years ahead.
“US investment will be one of the critical drivers of Apple’s strategy over the coming years,” said Samik Chatterjee at JPMorgan. “For John Ternus, the question is: how do I position the company to be on the right side of both Washington and Beijing?”
Tim Cook appears to have volunteered for the role of political fall guy as his title is switched from CEO to Executive Chairman. It is Cook rather than Ternus that will likely continue the delicate negotiations with both US and Chinese administrations.
Cook using his diplomatic skills and taking the heat on unpopular decisions will free up Ternus to focus more on Apple products.
It’ll also be interesting to hear how the company responds to tomorrow’s questioning by analysts. Slashing margins is likely to be unpopular with investors while increasing prices will be equally so with customers.
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