It can sometimes be easy to forget that Apple’s (s aapl) primary purpose as a company is to make money, not to continually wow the industry and the public with fresh designs and technical innovation, which is all actually just a means to the end of profitability. Occasionally, though, we are reminded of this fact by things like a new report in The Korea Times about Apple’s use of bully tactics with flash memory makers.
According to the newspaper, complaints are mounting among NAND flash producers that Apple is using its position as one of the biggest buyers on the block to artificially drive down prices with ethically questionable business practices. And suppliers can’t do anything about it, since that would mean risking a very lucrative arrangement.
Apple’s apparent plan is shrewd from a business perspective, but ethically questionable, though not, apparently, illegal or in violation of any industry regulations. A senior industry official, who wished to remain anonymous, described the process as follows:
Apple has asked Korean semiconductor makers to produce a certain amount of chips for its digital products, only to actually purchase a smaller volume eventually. The company doesn’t make immediate purchases, but waits until chip prices to fall to the level the company has internally targeted.
Samsung and Hynix are the major Korean players in the NAND flash game. Both refused to officially comment regarding the supposed bully tactics, as did Apple’s Korean office. An unidentified industry source claims that the practice is common knowledge among all involved, though.
No one believes the practices are tenable in the long term, since they erode good-faith relationships with key suppliers, who might conceivably refuse to play along if Apple continues to press too hard for too long. Rather, industry watchers believe the tactics to be a short term strategy aimed at temporarily reducing the costs of high capacity NAND flash chips. The lowered price would allow them to build iPhones with much higher capacities quickly and cheaply, which some see as a good strategy for staying ahead of competition by Android and others.
Apple could also be preparing for a time when it isn’t in a position to command the prices from suppliers it currently does. For a long time, it was one of the few companies that actually built significant storage into its cellphone handset, but many other companies are now following suit. Apple’s share will dwindle, percentage-wise, even if its user base continues to grow worldwide. This could be an anticipatory attempt to lay hands on as much hardware as possible, as cheaply as possible, before the industry becomes more competitive and demand far outpaces supply.