Before pricing a new product, Apple always checks what the profit margin potential is. This margin obviously depends on the manufacturing price, the higher it is, the more Apple’s profit margin is reduced. This detail is very important for the Californian giant, because the company prefers to increase the prices charged to customers than to lose money!
Towards a price increase for Apple products
According to a Bloomberg report, TSMC is facing significant increases in spending, which would likely lead to future price increases for chips that ship to Apple. The bad news is that this price difference (which could be temporary) will unsurprisingly affect the price charged to customers. Several popular products such as Macs, iPhones, iPads… could be affected in the coming months.
The culprit is found to be: Showa Denko KK, a chemical company located in Japan. The global chip shortage has prompted Showa Denko KK to dramatically raise the prices of the resources it supplies to TSMC for the production of its chips. Other semiconductor component manufacturers and materials suppliers are taking similar measures. When you look closer, Apple might not be the only company facing rising chip costs.
Showa Denko’s CFO Hideki Somemiya explained by saying:
A big common theme this year for everyone in the materials industry is how much cost burden we can convince customers to share with us. Current market movements force us to ask for double the amount we calculated earlier.
As an important supplier at the beginning of the manufacturing chain, Showa Denko’s price increases are expected to reduce margins and increase the pressure on customers like TSMC to pass on additional costs to their own customers, which Apple may be one of. According to Somemiya’s comments to Bloomberg, there is no point in expecting the situation to improve before 2023. It could last until 2024 in the worst case scenario.