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Apple tight-lipped on LG's iMac production deal

No comment, says Mac maker -- but the $10 billion deal makes too much sense

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Apple yesterday refused to comment on reports in the US and South Korea that the company is planning to place iMac production entirely in the hands of South Korean manufacturer LG Electronics. A spokesman said claims that LG is about to win a $10 billion contract that would see Mac production move from Apple's facilities in Ireland, Asia and the US transfer to LG's plants as mere "speculation". Of course the reports are speculative, but that doesn't mean they're false. Certainly, Apple is building links with LG. Earlier this week, Apple admitted that it would indeed be shifting iMac production away from its own factory in Cork, Ireland. European iMacs will shortly be sourced from LG's factory in Wales (see Apple axes 450 jobs in Cork, Ireland). LG is already producing core components for Apple. An LG spokesman said the company produced monitors and cases for one million iMacs between late August and December, ultimately for shipment to Apple's plants for final assembly. Given suitable contractual quality controls, there's no reason why LG couldn't extend that to other systems and/or greater volumes of iMacs, though it's more likely to be the latter. And since Apple interim CEO Steve Jobs is extremely enthusiastic about bringing down the cost of Mac production -- he has to; it's the only way the company can be profitable in the short term -- signing up LG would seem not only a sensible move but a highly likely one. Then there's the Asian IT market. Last year, Apple opened a branch office in South Korea (see earlier story), run through local sales agent Elex. Apple is very keen to pursue the Asian market. While the region's economies are still somewhat shaky, a number of industry observers believe that IT opportunities will soon expand thanks to the large number of old systems currently installed in Far Easter businesses. With Wintel far less entrenched in Asia than it is in the West, that gives Apple the chance to build up a greater market share there than it has in the US and Europe. So with the prospect of increased sales in Asia, plus moves to cut costs in the West, the economies of scale argument for signing a single supplier, such as LG, become even stronger. And with Apple desperate to compete on price with companies that just churn out PCs yet have nothing like Apple's R&D spend, economies of scale arguments must set the dollar signs ringing up in the cash till of Jobs' mind. ®

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