Apple supplier Pegatron margins squeezed by iPhone 5c launch

Apple supplier Pegatron margins squeezed by iPhone 5c launch

Summary: Pegatron, a large contract equipment manufacturer, has been used by Apple to diversify its supplier base beyond Hon Hai.

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TOPICS: Mobility, Apple
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Pegatron, an Apple supplier that manufactures the iPhone 5c and iPad mini, saw revenue surge, but profit margins were squeezed.

The company, a large contract equipment manufacturer, has been used by Apple to diversify its supplier base beyond Hon Hai. As a result, Pegatron ramped up its production and third quarter revenue surged 11.3 percent from a year ago. The catch is that Pegatron's operating margin was 1.5 percent, below the 1.8 percent analysts were expecting.

pegatron q3

 

In its presentation, Pegatron noted that its growth was driven by a "new product launch in the communications segment."

Morgan Stanley analyst Grace Chen said the Pegatron results were mixed. She added that Pegatron will also see iPhone 5c order cuts going forward. As a result, Pegatron is going to closely manage its labor costs and factory utilization.

As noted by the Wall Street Journal, Apple will continue to broaden its supplier base and add players such as Compal and Wistron. Apple brings big volume, but not-so-hot profit margins for suppliers.

Topics: Mobility, Apple

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6 comments
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  • suppliers should stop production untill Apple shares more of the bounty

    Its not like they can't afford it.
    greywolf7
    • Hate to break it to you, but this supplier engaged in

      negotiations with Apple for that contract and knew exactly what they were going to get paid and what their profit margin was going to be when they signed the contract. You keep confusing business with government. A business, Apple included, cannot FORCE anyone to sign a contract with them. Only government can FORCE you to buy something you don't want to.
      baggins_z
      • and they should still cut Apple off

        Or just slow down or ship some empty cartons. After all its the "design" (poor design) that causes it to be difficult to manufacture impacting yield and margins.
        greywolf7
        • You trolls are so incredibly dumb...

          Any of you brainiacs ever hear of a SLA (service level agreement)?

          Do any of you trolls think any company would do business with any supplier without an SLA?

          This is something you don't get to spin just because it suits you... Pegatron is doing exactly what they chose to do and thier numbers are the result of their decision and not Apple's decision. Apple just happens to be a customer in this case. You tools really need to get a clue and buy a friggin vowel.
          i8thecat4
  • Margins

    The things about margins that have always bothered me as a talking point:
    1) Margins erode as products become a commodity because it's easier for more folks to manufacture, and you go from invent mode to make mode. Even the inventors should become more efficient at making the product, so of course the margins should come down, and as the margins come down, sales should improve. It might no be linear, or it might be more than linear.
    2) Jeff Bezos "Your margin is my opportunity". If someone wants to be the low-cost producer, and go for volume, your margin is an endangered species.
    3) The way you inflate margins is by being something that no one else can be. The iPhone is definitely not that. Making the iPhone is not that, either.
    4) This is the big one - look at the wealthy and the hyper-wealthy. What do they do? If you're surprised that many of them are either in a low-margin or margin-erosion business, you're not in business.

    Here's the Forbes list: http://www.forbes.com/billionaires/list/
    In the top 20, I counted 12 that are in low margin spaces. As you get further down the list, the percentage increases.

    What's the saying? If you want to drive a Cadillac, sell Fords. If you want to drive a Ford, sell Cadillacs. Do you know any poor folks who own grocery stores? Do you know what the margin is on groceries?
    m0o0o0o0o
    • nah

      If you want to be smart, import low-margin and sell (export) high-margin.
      paddle.