WSJ Reveals Apple's Profit-Making Technique: Using Binned Chips to Launch Low-Cost Products and Capture Market Share

(CNA, San Francisco, 18th, Comprehensive Foreign Report) The Wall Street Journal reports that while most electronics manufacturers are hit hard by rising costs, Apple Inc. is able to launch low-priced new products like the MacBook Neo and iPhone 17e to capture the market, thanks to its long-standing practice of reusing flawed chips. The report points out that Apple has long been admired by consumers for its high-priced products, but its new entry-level laptop, the MacBook Neo, is priced at only $599 (about NT$18,900), and initial sales data show that this product is very popular. Although the MacBook Neo is said to be equipped with Apple's A18 Pro chip, the same chip as in the 2024 high-end smartphone iPhone 16 Pro, its core count has been reduced from six to five. The Wall Street Journal stated that this shows Apple can save some A18 Pro chips with one defective core for future use, as the defective core can be disabled. These chips can then be used in other lower-priced devices and still perform very well. In fact, Apple is employing a practice from the chip industry that seeks to squeeze profits from lower-performing processors, similar to how eggs, gasoline, diamonds, or hotel rooms are sold, by 'binning' the supply into 'good,' 'better,' and 'best' product grades. Analysts point out that this industry strategy, which has been practiced for decades, was originally just to make the most of chips, but has now become the foundation of Apple's product line design strategy, allowing it to perform precise segmentation with an efficiency that smaller rivals find difficult to match. In addition to using the flexibility of its self-developed chips to launch lower-priced iPhones and Macs, Apple also leverages its powerful supply chain advantages to reuse chips for price wars, thereby attracting new users. For example, the MacBook Neo is cheap enough to poach consumers who might have originally purchased a Google Chromebook or other desktop PCs. The iPhone 17e also features a 'binned' chip and is priced low enough to attract users of phones running Google's Android operating system. Market research firms Counterpoint and IDC both stated that due to soaring prices of memory and storage devices, it has become unprofitable for Apple's competitors to sell lower-end products. In contrast, Apple is in a more advantageous position to seize the market by launching cheaper products. Tim Culpan, a supply chain analyst who has written about MacBook Neo chip orders, said, 'If you can take something that doesn't meet the highest specifications and continue to use it, you not only save time, money, and reduce waste, but you can also sell to many customers you might not have been able to reach otherwise.' And as long as Apple adds new users to its device products, it can potentially add buyers for its services like iCloud and the App Store, which also have higher profit margins. After analyzing nearly 200 pages of Apple's documents, The Wall Street Journal found that since 2021, six of Apple's A-series chips have had versions with one fewer core used in lower-priced device products, while the full-core versions were initially installed in higher-priced iPhones. However, sources familiar with Apple's supply chain revealed that the MacBook Neo is now selling so well that even the surplus chips originally intended for reuse are running low, forcing Apple to recently place new orders for the A18 Pro. However, since TSMC is the sole supplier for Apple's most advanced chips, and TSMC is struggling to cope with the frantic demand for artificial intelligence (AI) chips, as Hong Kong's TF International Securities analyst Ming-Chi Kuo said: 'Apple no longer enjoys the (supply) flexibility it once had, and the pressure is beginning to show.' (Compiled by: Chang Cheng-chien)