Apple's new CEO John Ternus will face two critical decisions immediately after taking office. This situation is mentioned in a new Financial Times report.

First, how he will respond to the significant increase in memory prices. Apple’s RAM costs are expected to rise by more than 400% next year. Second, how the company will shape its production plans in China, India, and the US...

Memory Costs to Rise by More Than 400%

Apple is facing a completely new world when purchasing memory for its devices. The company is such a dominant player in the market that it could dictate terms to suppliers. However, this situation has changed with the significant increase in demand for memory for artificial intelligence servers.

Financial Times states that memory costs previously represented about 10% of the material costs of the iPhone, which could rise to as much as 45% next year. This will put Ternus in a troubling position: Will Apple accept reducing profit margins to accommodate this significant cost increase? Or will it raise prices at the risk of reducing sales?

This is likely to be a key question that analysts will ask in tomorrow's earnings call.

Production in China, India, and the US

Another important question will be how the company will reshape its production profile in China, India, and the US.

One of Tim Cook's diplomatic victories was convincing Trump that producing iPhones in the US was not a realistic option; he also provided the president with PR victories in the form of other investments in US production.

Apple has sometimes had to strike a very difficult balance in China. The government there aggressively responded to the shift of iPhone assembly from China to India. A report published in February stated that China was intentionally obstructing iPhone production in India in three different ways.

The report indicates that Ternus will have to make supply chain decisions that will affect the company's future years.

These pressures are prompting Apple to reassess where it produces its products, how it secures components, and when it launches new devices — decisions that will reshape the company's future business model.

“US investment will be one of the critical engines of Apple’s strategy in the coming years,” says Samik Chatterjee from JPMorgan. “The question for John Ternus is: How can I keep the company in a good position with both Washington and Beijing?”

9to5Mac's View

Tim Cook seems to have voluntarily taken on a political target as he transitions from CEO to Executive Chairman. It is likely that Cook will continue delicate negotiations with the US and Chinese administrations in Ternus's place.

By using his diplomatic skills to shoulder the burden of unpopular decisions, Cook will allow Ternus to focus more on Apple products.

It will also be interesting to hear how the company responds to analysts' questions tomorrow. Reducing profit margins may not be well received among investors, while raising prices could elicit a similar reaction from customers.

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