Apple Inc. (AAPL)’s gross-profit margin, the envy of most manufacturers at 40 percent, has been surpassed by that of its primary supplier of speakers for the iPhone and iPad. As a result, China-based AAC Technologies Holdings Inc. (2018) may feel the squeeze as the smartphone maker seeks new providers.
The CHART OF THE DAY shows AAC’s 43.9 percent gross margin in the three months to June exceeded Apple’s, whose profit spread narrowed the past two quarters. Illinois-based Dover Corp. (DOV), Apple’s No. 2 speaker supplier according to Barclays Plc, had a margin of 38.3 percent through Sept. 30, followed by 25.6 percent for GoerTek Inc. (002241), according to the latest data compiled by Bloomberg. AAC until recently made speakers for about two- thirds of all iPhone 5s and iPad minis.
“The competition landscape has changed; Apple is splitting speaker-box orders,” said Bill Fan, an analyst at Guosen Securities in Hong Kong. “Margin squeeze is inevitable.”
As GoerTek seeks to increase its Apple ties, AAC and GoerTek face the challenge of retaining profitability without losing orders for speakers, which Barclays estimates are sold to Apple for about $1 to $1.50 each. AAC’s response has included increased investment in automation at its plants to lower labor costs and improve quality, said Jonathan Ng, a Singapore-based analyst at CIMB-GK Pte.
“AAC is able to produce the high volume required by Apple, which is why I think they are able to maintain such high market share,” Ng said. “As for GoerTek, the company just got into Apple’s speaker-box supply chain.”
The gross margin of Hon Hai Precision Industry Co., which employs about 1 million workers in China to assemble finished phones and computers for Cupertino, California-based Apple, was 9.5 percent in the quarter to Sept. 30. The first iPhones were sold in June 2007.
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