What does a well-managed company do in a tough business environment? It works to separate obstacle from opportunity, and then exploits its advantages, scale, and timing to turn the former into the latter.
Apple’s history is full of examples of this kind, from the 150 calls a young Steve Jobs made cold-calling investors to Apple’s recent move to turn a perceived lag in AI development into a platform advantage for running models built by others. Through the years, Apple has consistently reframed weakness as leverage.
Now, it appears the company is doing the same with component price increases. According to unconfirmed claims, it is scooping up “all available mobile DRAM” at high cost. That may seem counter-intuitive as it means the company is locking in these high prices. But the scale of Apple’s operations means it can absorb higher unit prices while still effectively paying less than competitors who buy in smaller volumes.
It’s an approach that lets the company build its own stockpiles of precious components while making it harder and more expensive for rivals to do the same thing. This isn’t just good business, it’s a competitive strategy. Apple is using its balance sheet to build a competitive moat.
Defining the market
At the same time, Apple has also widened its addressable market, most famously with the introduction of the fantastic MacBook Neo. With a $599 ($499 to education) starting price, the Mac injects Apple directly into the most price-sensitive and highest volume segment of the PC market.
Historically dominated by thin-margin Windows and Chrome devices, this part of the market is deeply competitive, with manufacturers making trade-offs between product quality and margins.
Apple offers a high-value proposition that is simply better made, looks better and feels far better than anything else in that league. Competitors don’t have an answer yet, particularly as both Windows and ChromeOS are such memory hungry systems. Apple is competing in memory pricing, too.
Inflation as a weapon
All these events unfold before the full impact of the Iran war is felt across the economic, energy, supply, and raw materials component chains. We’ll see the implications of that a great deal more clearly once the last ships to pass through the region are unloaded, which should occur over the coming weeks.
The implications are obvious. Apple is leaning into component cost increases, sustaining the impact of them through a combination of shrewd supply chain management, a large order book, and its vast cash hoard. Its moves both protect the company and pose further inflationary pressure against rivals.
It both raises input costs and squeezes prices by defining expectations higher. The consequences include shrinking margins for mid-range computer and smartphone makers. That makes it far more challenging to differentiate product on features or price, and consolidation becomes more likely. It will be a huge challenge for rivals to come up with compelling alternatives to the MacBook Neo or iPhone 17e.
Meanwhile on Wall Street
Not only will peers in the space be constrained by operating system choices most recently exemplified by Outlook problems in outer space; expensive components and the limited capacity of the processors available to them mean they will become increasingly less able to compete, even as product prices rise.
Wall Street seems to be getting it. Morgan Stanley analyst Erik Woodring told CNBC he expects iPhone sales to see 20% growth in the March quarter, pointing out that Apple upgrade rates are at an all-time high.
More importantly, he described the strategic posture: “We think that Apple is, in this type of environment, really going to try and maximize gross profit dollars, not gross margins. And that is through pricing, that is through supply chain actions,” he said.
What we learn from this is that while others may retreat in the face of business challenges right now, Apple is using its advantages to widen both its market and the gap with its competitors. Rivals face existential challenges, even while Apple must just remain focused on continuing to deliver the best available user experiences.
Apple is not merely enduring the challenges it faces, it is exploiting the opportunity it sees in them. That refusal to give in to existential challenges is precisely what well-managed entities do. In business, life, or even politics, you’ll win more often if you can figure out what winning looks like. For Apple, it looks like rapid increases in profitable market share.
What does winning look like to you?
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