Apple Supplier Pegatron’s Hiring Spree Further Fuels Speculation About A Cheaper iPhone

Posted: May 9, 2013 in Apple, Iphone, Technology
Tags: ,

Once again, news from a supplier is fueling rumors
about Apple’s future product roster. This time it’s
manufacturer Pegatron’s announcement that it will
increase its number of workers in China by up to 40
percent in the second half of this year. The hiring blitz
at the company, which produces iOS devices, has led to new round of speculation that a cheaper iPhone is
in the works. Suppliers have told Reuters that Apple is developing
a cheaper iPhone in order to target emerging markets
such as China and India. The less expensive version
of the smartphone is expected to launch by the third
quarter. Pegatron’s financial performance is closely tied to the
Apple products it makes. Just yesterday the
company forecast its biggest drop in consumer
electronics revenue in six quarters due to falling
demand for the iPad Mini. Pegatron said its second
quarter revenue will decrease 25 percent to 30 percent from the previous three months. Other signs that Pegatron is expecting orders for a
cheaper iPhone is chief financial officer Charles Lin’s
disclosure that more than 60 percent of the
company’s 2013 revenue will come from the second
half of the year. Pegatron president and chief
executive officer Jason Cheng said earlier this week that revenue from communication products will
contribute up to 40 percent to the total in second half
of 2013, compared to 24 percent in the first quarter. Apple CEO Tim Cook said last month that the
Cupertino company will start rolling out new products
this fall and throughout 2014, including devices in
“exciting new product categories.” Though its unclear
exactly what Apple will be unleashing in a few
months, many analysts believe that it will launch a cheaper iPhone instead of a larger-sized “phablet” that
would compete with Samsung’s Galaxy Note. A less expensive handset will allow Apple to compete
with cheaper devices running on Android in emerging
markets, but analysts’ opinions on how much of an
effect a less pricey iPhone would have on Apple’s
earnings vary widely. The company posted its first
year-over-year earnings decline since 2003 in the second quarter, reporting $43.6 billion in revenue (up
from $39.2 billion in the year-ago quarter) along with
$9.5 billion in quarterly net profit. Enders Analysis’ Benedict Evans said “a blockbuster
new Apple phone that almost doubles unit sales and
blows a hole in the middle of the Android market
might only add 5 percent to Apple’s gross profits.” On the other hand, Morgan Stanley analyst Katy
Huberty believes a cheaper version can potentially
add another 20 percent to the 10 percent market
share iPhone currently holds in China. “Even in a
scenario of low 40 percent gross margin and 1/3
iPhone cannibalization rate (flattening legacy iPhone shipment growth, which we view as conservative, the
iPhone Mini adds incremental revenue and gross
profit dollars,” she wrote in a recent investors note.

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