John Sculley: Apple’s System Needs Fixing

A cheaper iPhone may have become a necessity, but Apple (NASDAQ:AAPL) will need to overhaul its supply chain to keep the device’s manufacturing cost low and make it profitable, the company’s former chief executive John Sculley has said. While a high-profile iPhone may have seen great success in the United States and Europe over the last couple of years, the future called for a focus on growth in emerging markets. And there, a premium priced smartphone will just not work in the face of cheaper, similarly functional devices from Google (NASDAQ:GOOG) Android rivals, Sculley added.

“Apple needs to adapt to a very different world,” Sculley told Bloomberg Television. “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 and how you can make these products and do it profitably.”

Apple’s stock fell to the lowest price in 11 months on Monday after news reports that it had cut back on production of the iPhone 5 after seeing weaker-than-expected demand. Several of Apple Asian suppliers, including Sharp, also declined after the reports. Slower iPhone demand “will inevitably have a negative impact on component suppliers,” Tong Yang Securities analyst Park Hyun told Bloomberg. “The center of growth in the market is moving toward the mid-end segment.”

Sculley specifically mentioned the increasing levels of threat from devices such as Samsung’s (SSNLF.PK) Galaxy S series. “Samsung is an extraordinarily good competitor,” he said. “The differentiation between a Samsung Galaxy and an iPhone 5 is not as great as we used to see.”

The former chief did express confidence in current CEO Tim Cook, who was speeding up the company’s product cycle to twice a year. Cook is “exactly the right leader” because of his supply-chain expertise, Sculley said.

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