Apple is squeezing suppliers keep its profits high, says analyst

As iPhone sales fall, Apple is leaning on suppliers to keep its profits up.

Apple is squeezing its suppliers for lower prices, RBC Capital Markets analysts Amit Daryanani and Jeriel Ong claim in a research note distributed to clients on Tuesday.

They looked at 11 companies that sell their products and services to Apple, and found that 10 of those companies had projected that their gross margins would be lower than previous expectations for the second half of the year.

Some of these companies assemble iPhones and other Apple computers, and others sell Apple chips and other components. The analysts looked at companies including TSMC, Catcher, Cirrus Logic, Dialog Semiconductor, and others.

“We think Apple has been pushing for price discounts from multiple suppliers as a way to dampen foreign exchange headwinds Apple is facing on their own profit and loss statement heading into the iPhone 7,” the analysts write. This backs up a Asian trade publication report from earlier this month which suggested Apple was starting to drive a hard bargain.

Apple’s cash cow, the iPhone, has suffered two consecutive quarters of annual sales declines as Apple’s revenue has shrunk during the same period. Apple’s margins last quarter were down to 38% from 39% in the year-ago period.

For Apple, RBC analysts believe that this suggests that the company’s gross margins could have some upside.

When Apple launches the newest iPhone in the next two months, it might return the product line to year-over-year growth, but the growth might be slight.

Still, RBC projects Apple will only sell 209 million iPhones in 2016, which would be down 10% over 2015.

CEO Tim Cook has blamed foreign exchange headwinds for Apple’s disappointing year. “We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look,” Cook said earlier this year.

Given that CEO Tim Cook’s background is in logistics and operations, it shouldn’t be surprising that Apple drives a hard bargain with its suppliers.

RBC gives Apple stock an “outperform” rating. Here’s the data it pulled on Apple’s suppliers:

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