I’ll Take My Victory Lap Now
Bear with me as I take my victory lap.
On October 17th, Digitimes reported on something which everyone found shocking, except for me. They said that Quanta Computers was actually considering dumping their Apple Watch assembly business due to profitability concerns.
On October 17th, Digitimes reported on something which everyone found shocking, except for me. They said that Quanta Computers was actually considering dumping their Apple Watch assembly business due to profitability concerns.
According to the Cult of Mac:
"Quanta Computer is likely to stop taking assembly orders for the Apple Watch next year due to profit concerns," reports Digitimes, citing industry sources.
The Taiwanese firm may even "sell its Changshu plant in China" dedicated to Watch assembly.
I didn’t find this shocking at all because I’ve been reporting for years that Apple priced the Apple Watch at close to cost, or maybe even below cost. Others were reporting just the opposite. The Apple Watch was the start of a new approach by Apple and the goal was to create a new market. Unlike phones and MP3 players, there was no large wearables market to introduce their new product into.
Further, you can see how the Apple Watch packaging has shifted to cut costs. Apple abandoned the fancy white storage cases that were expensive to ship and moved to lighter cardboard that you could mix-and-match bands with. Then Apple raised Apple Watch prices.
The Apple Watch should go down in business marketing textbooks as an example of how to launch a new product. Apple successfully achieved market penetration and then proceeded to raise prices and cut costs to raise profitability. Contrast this with a basket case company like Tesla. Tesla has to cut prices and increase incentives on an almost weekly basis to move metal, destroying gross margins. One of these two companies is going out of business within the next few years.
So why would Quanta want to bail on a huge growing business like the Apple Watch? When I worked with Gateway computers, we also used Quanta for laptop computer assembly. So I know a little about how they operate. My guess is that the Apple Watch assembly contract is coming to an end soon and Quanta is using the press for negotiation of a new assembly agreement. I don’t blame them. Quanta probably gave Apple a pretty sweet deal to get the business and the expectation was set up front from Apple that at some point the margins would improve.
I don’t really see much of a big story here. It all seems like the normal course of business. The interesting part to me is that this is the first confirmation I’ve had that I was on the right track regarding Apple Watch gross margins. Not that I doubted my financial instincts. No one else wrote anything similar at the time or since. In fact, the blogosphere has been writing that the Apple Watch could be the most profitable product that Apple has ever offered with margins of over 60%. Ha! Yeah, right.
Pictured Band = Juuk Vitero (Space Gray/Ruby)
"Quanta Computer is likely to stop taking assembly orders for the Apple Watch next year due to profit concerns," reports Digitimes, citing industry sources.
The Taiwanese firm may even "sell its Changshu plant in China" dedicated to Watch assembly.
I didn’t find this shocking at all because I’ve been reporting for years that Apple priced the Apple Watch at close to cost, or maybe even below cost. Others were reporting just the opposite. The Apple Watch was the start of a new approach by Apple and the goal was to create a new market. Unlike phones and MP3 players, there was no large wearables market to introduce their new product into.
Further, you can see how the Apple Watch packaging has shifted to cut costs. Apple abandoned the fancy white storage cases that were expensive to ship and moved to lighter cardboard that you could mix-and-match bands with. Then Apple raised Apple Watch prices.
The Apple Watch should go down in business marketing textbooks as an example of how to launch a new product. Apple successfully achieved market penetration and then proceeded to raise prices and cut costs to raise profitability. Contrast this with a basket case company like Tesla. Tesla has to cut prices and increase incentives on an almost weekly basis to move metal, destroying gross margins. One of these two companies is going out of business within the next few years.
So why would Quanta want to bail on a huge growing business like the Apple Watch? When I worked with Gateway computers, we also used Quanta for laptop computer assembly. So I know a little about how they operate. My guess is that the Apple Watch assembly contract is coming to an end soon and Quanta is using the press for negotiation of a new assembly agreement. I don’t blame them. Quanta probably gave Apple a pretty sweet deal to get the business and the expectation was set up front from Apple that at some point the margins would improve.
I don’t really see much of a big story here. It all seems like the normal course of business. The interesting part to me is that this is the first confirmation I’ve had that I was on the right track regarding Apple Watch gross margins. Not that I doubted my financial instincts. No one else wrote anything similar at the time or since. In fact, the blogosphere has been writing that the Apple Watch could be the most profitable product that Apple has ever offered with margins of over 60%. Ha! Yeah, right.
Pictured Band = Juuk Vitero (Space Gray/Ruby)
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