>> Apple potentially dropping Imagination Technologies as a supplier, sending that companies stock plummeting. This is something we could see a lot more of is the launch of the new iPhone comes out this fall. I'm Reuters correspondent Stephen Nellis here in San Francisco. Imagination Technologies makes imaging chips and gets about half of its revenue from Apple.
Executives at Imagination said, that Apple may drop them as a supplier or might choose to renegotiate the terms of its contract. This is something we could see more of as the iPhone 8 approaches because Apple is hyper focused on margin that new iPhone is likely to include features like a big shiny new screen.
That screen is gonna add cost to the iPhone. So Apple is looking for every way it can to reduce other costs to keep its margins intact. It's very possible that this is a very hard opening negotiating tactic by Apple in order to get Imagination to lower its prices.
We've seen similar situations with other suppliers. Qualcomm makes the modem chips that go in your phone that help it connect to LTE networks and other data networks. Apple is suing Qualcomm for a billion dollars right now, and it's primarily over the terms of those licensing agreements. So what does this mean to the average iPhone customer, and why is Apple doing this?
The reason is pricing. So, the new iPhones are expected to come maybe north of a thousand dollars for a high-end fully loaded model. But the companies still wants to have lots of phones that are competitive price-wise with Samsung phones and others are in the mid $700 mark. And, bringing these components in house, helps Apple keep a little on those prices, keeps its margins high and keeps it's phone competitive with the other folks out there making smartphones.