Apple Inc. (AAPL:US) needs to overhaul its supply chain to meet demand for cheaper smartphones in emerging markets, former Chief Executive Officer John Sculley said.
As the market for handsets including Apple’s iPhone gets saturated in developed regions such as the U.S. and Europe, the company will increasingly depend on growth in emerging markets, including India, Sculley said today in a Bloomberg Television interview from Singapore.
“Apple needs to adapt to a very different world,” Sculley said. “As we go from $500 smartphones to even as low, for some companies, as $100 for a smartphone, you’ve got to dramatically rethink the supply chain (AAPL:US) and how you can make these products and do it profitably.”
Apple fell to the lowest price in 11 months in New York yesterday after the Nikkei reported production of its latest smartphone model, the iPhone 5, was scaled back on weak demand. While there’s “nothing wrong” with the newest iPhone, the difference between that product and those made by Samsung Electronics Co. (005930) has diminished, Sculley said.
“Samsung is an extraordinarily good competitor,” Sculley said. “The differentiation between a Samsung Galaxy and an iPhone 5 is not as great as we used to see.”
Apple CEO Tim Cook, who is speeding up the Cupertino, California-based company’s product cycle to introduce new models twice a year, is “exactly the right leader” because of his supply-chain expertise, Sculley said.
Apple ordered about half the 65 million iPhone 5 displays it originally targeted for this quarter, the Nikkei said, citing an unnamed executive at a component maker.
Manufacturing curbs have been widely known since December, according to Steven Milunovich and Mark Moskowitz, analysts at UBS AG and JPMorgan Chase & Co., respectively.
Last month, Apple cut production by about 30 percent, which may be the result of inventory rebalancing or lower consumer demand, Milunovich wrote in a research report yesterday. Order cuts may also be due to suppliers becoming more adept at building the latest iPhone, reducing the need for Apple to order excess parts, Moskowitz wrote in a note to clients yesterday.
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