Apple has been diversifying its assembly chain away from Foxconn, the company's long time partner in hardware manufacturing, in recent years. One company that has managed to perform for Apple is Pegatron, which is the manufacturer for the iPhone 5c, Apple's low cost device. However, things are not always on the good side in this relationship between both companies.
Net profits for Pegatron were $84 million (£53 million) for its third quarter, which is slightly below what analysts have projected. The smaller margins came about due to decreased orders from Apple for the iPhone 5c, which is suggesting that the phone has failed to meet sales expectations.
In October, Apple announced a falling fourth quarter profits of $7.5 billion, this despite iPhone sales rising 26% to 33.8 million. This the first time we get an idea of how well the new iPhone models are performing. Furthermore, the iPhone 5c was designed to appeal to the Chinese market, but it appears as if that plan is not working out in ways the Cupertino giant would have liked.
"Being an Apple Inc. supplier can be both sweet and bitter.
"Pegatron Corp. booked record third-quarter revenue on Monday, buoyed by orders for the iPhone 5C as it became the primary supplier the smartphone for the first time. Its profit margins were squeezed, however, weighed down by costs for the rapid ramp-up in production.
"The earnings result suggests what could be in store for other assemblers next year, as Apple increasingly branches out its supplier base to diversify risk and cut costs. Becoming a major Apple supplier means huge scale of orders, but also brings logistical hurdles, hefty production costs and-as Hon Hai Precision Industry Ltd. 2317.TW +1.35% has found-microscopic scrutiny by labor groups," Wall Street Journal reported.
Over time, things might get better for the iPhone 5c, which would make things better for Pegatron in turn. However, this might not happen if consumers continue to show a preference towards the iPhone 5s, which is the more capable device of the two.