Apple Accused of Flash Memory Manipulation

[Michael Essany]

With Apple's enormous power and size, it isn't difficult to imagine the many ways in which the company is capable of exerting massive influence wherever it places its high beams. Naturally, such influence leaves Apple vulnerable to the occasional criticism of market manipulation.

Case in point. This week Apple is facing claims that it is "manipulating flash memory prices" through the duplicitous act of placing huge orders and then ultimately taking less than originally demanded. According to a report from 9to5Mac, Apple continues to affect prices with the tactics they are believed to habitually employ.

An article in the Korea Times cites industry sources, principally chipmakers, who seem to be frustrated because Apple will place a large order for the component but then subsequently buy less than originally demanded, generating market saturation and suppressing prices.

The actions are hitting giant memory makers Samsung and Hynix, both of which are virtually powerless to stop Apple given how desperately they need to continue doing business with Cupertino. But when the "lean margins" experienced by Samsung and Hynix are observed in comparison to Apple's soaring earnings, the real impact of the alleged shoddy purchasing practices can be seen.

"Apple should certainly be blamed for deteriorating the supply and demand cycle in the global NAND flash market," The Korea Times quotes an un-named industry official as saying.

When a claim like this is levied, it's important to consider the source. And in this case, we don't even have a "source," unless you count the unnamed individuals cited in the story who have plenty to say but few details or other shreds of evidence to provide.

Another industry official, also reluctant to be identified, used the words "absurd" to describe Apple's purchasing strategies.

It should also be noted that Samsung, Hynix and Apple Korea did not contribute to the Korea Times report that sparked the controversial accusations.

Image via Apple

[jOnGarrett]

NO refunds, 80% restocking fee. problem solved.

[hollow0]

Well...Apple should try to have a better analysis of the quantity that they actually need.

[hancoma]

Funny. If Apple follows consistent corporate contracts, they do not order any parts, or do any manufacturing.
The end customer (cell companies), submit an order to the OEM (final assy and test factory) requesting x quantity.

This factory already has x quantity on hand and based upon the build quantity may need to procure more parts from the other vendors required for assy.

Now, the 3rd parties may be sandbagging parts (flash memory) due to supply.

3rd party Oem's profit margins are only 2%, 4 if lucky. While the profits for Apple, or the company they manufacture for is typically 55% or more.

This is how all of the major companies do it, such as ***co, ***tel, ***lit **ckard, etc.

I assume apple would be no different.

[mgebara]

awww sounds like someone is very upset that they're being outsmarted by fruit!

[steve-z17]

Why would you complain against someone who's business you need? Even if they were doing it on purpose why would you make a huge deal about it, why not just handle the situation yourself? It's not like your going to get outside help by complaining about it. You make the prices and the rules, there IS something you can do that doesn't involve whining.

[Luppin]

Why would you complain against someone who's business you need? Even if they were doing it on purpose why would you make a huge deal about it, why not just handle the situation yourself? It's not like your going to get outside help by complaining about it. You make the prices and the rules, there IS something you can do that doesn't involve whining.

The chip manufacturers didn't contribute to the complaint if you read the entire post, some "industry insider" did

[rhekt]

sounds like customers i deal with. saying theyll buy x LARGE amount of product for x small amount of cost. and only end up buying a partial amount. im sure apple gets a volume discount. negotiates cost on X amount and only picks up the partial, promising theyll still get the rest. but dont.

[hancoma]

The chip manufacturers didn't contribute to the complaint if you read the entire post, some "industry insider" did

Also, the vendors cannot simply 'change' the price. There are corporate contracts for pricing models on quantities.
If the vendor requests a larger quantity, the price goes down, and if the vendor bails out due to changing demand...there are no repercussions.
They are left with a huge inventory of parts, and now have to sell them, as inventory turns is a metric of profitability. Thus the price goes down.

No, they cannot simply change the contract, this is done maybe every 6 months as part of pricing model and assy, typically parts cost and replenishment is a set industry standard across all OEM's and not negotiated.
If these prices are changed, a new vendor is sought....and other vendors will give them the prices they want simply for the business.

[Jahooba]

Hmm, this is such an unsubstantiated claim that it's almost not worth commenting about or even repeating.

Samsung could hold them for breach of contract if this was indeed the case. Unless of course Apple has them by the balls with a shady contract that allows them to deny the purchase of a certain percentage of their order. Who would be to blame for THAT, right? Samsung would take a big part of that blame for agreeing to such a contract.

[Blowfish64]

I don't understand why they can't just refuse to ship until the order has been paid in full.

[rockjohn]

crazy

[jOnGarrett]

Why would you complain against someone who's business you need? Even if they were doing it on purpose why would you make a huge deal about it, why not just handle the situation yourself? It's not like your going to get outside help by complaining about it. You make the prices and the rules, there IS something you can do that doesn't involve whining.

because when apple places an order with these companies theyre books are in the black, the money from these orders are projected income. then apple cancels and they have to redo their books.

imagine if I owe you $100 and tell you I'll pay at the end of the week, well you might plan to take your girlfriend to the movies with that $100 but then I call you on Thursday and tell you I cant pay you the whole hundred and offer you $40 instead. that would kinda put a wrinkle in your weekend plans if you were counting on receiving what as due.

[SubCool]

Kudos to Apple. They are helping bring the prices down on already expensive product. I do not sympathize for the chip makers, because that is business. Today i might want 1million, but tomorrow when my cheese stock goes down, i can only afford 750K. Or, given to production of Droid or GPhone, etc... Demand is demand. Chip makers cant complain, they just wont more money for their stuff. We need more memory out there, I want a 1T iphone. Or possible external memory extension so my 3G doesn't suck so badly.

I have been involved in the Semi-conductor factories. And the problem is Taiwan's issue. If you know u need 1M chips by summer, and the first shipment is in Feb; DONT MAKE 1M chips by FEB!!!! Duh!? Chips do take relatively long to make, depending on the chip. But, the process has a 1 month lag. If in the course of the month- their order goes down. Well duh, stop producing.. and wait it out. Its Apple's fault for being overzealous.

[mortopher]

And the problem is Taiwan's issue... Its Apple's fault for being overzealous.

What?

[plcrules]

its the compony making the chips responsible apple is payin alot for all those chips u would think with all the profit that compony makes they should expand so they can make more faster

[minhwan]

Well, I see a lot of comments from kids who have no idea about business.

I don't understand why they can't just refuse to ship until the order has been paid in full.

That's the funniest comment I ever seen this month

you don't know how hard the situation is for those manufacturers if the whole story is real.
Also, it's not called "complaining" or "whinning" it is a report on "absurdity."

When it comes to your end (eg. soaring flash memory price when you plan to buy), you would be "complaining" as well

[matthew1111]

looks like apple may get away with this one

[steve-z17]

It definitely is absurd, but it also sounds like whining. Why else make comments against them, especially if Apple can just switch companies? I mean are they accomplishing anything my doing this?

[minhwan]

learn to read, the article state that source is not from Samsung or Hynix. So it could be from somewhere else. It might be whining if it's from Samsung & Hynix but from others point of view, how come it'd be whining ? can you not point out others absurdity ? can you not correct others fault ? would you stay in your room quietly when some one taking all your stuff in living room ?

You don't see things until you do something. You will never accomplish things if you stand still.

you have bad attitude by the way