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I work in the CE industry. It's pretty widely known that Apple usually pads their initial estimates pretty heavily, but includes wicked bad penalties if a supplier CANNOT meet the padded demand. If demand actually meets their estimates (which it almost never does), then Apple is covered.

BUT, when demand is short of estimates (which is the most common case), Apple uses the surplus manufacturing capacity the factory has to beat them down on price. They make them over-commit on production capacity, then force price-downs when the initial order estimates are low and production capacity is at only 70% or so.

Uh, no, they do not. You're spouting BS. If what you claim were true, no contractor would do business with Apple. Apple is well known for their just in time inventory control. Apple does not pad their orders. Apple pays for the equipment for the contractors' assembly lines and specialized manufacturing for their lines.

An article which hints at what I've stated. You may not work in consumer electronics, but it's a pretty open secret amongst the industry (mainly from those who worked at Apple) about their demand estimates. Estimate high, put harsh penalties for not having that volume support, and if sales come in lower then push to cut costs because of excess capacity.

Why do companies accept the orders in the first place? Well, the first few who did got seriously burned. Now that price is built-in to the estimates so there is wiggle room when the inevitable slowdown comes, and those thousands of dedicated CNCs are sitting idle for 12 hours a day. That's already baked into the original price.

And you have to realize that companies do NOT make all their profit from sales of product; there are pretty hefty kickbacks from the Chinese Governments (Local, Provincial, and National) to keep employment high. So they aren't just for-profit organizations, they are also jobs programs.

Anyway, the overestimation of capacity is a well-worn game, used effectively time and again. And in light of Apple's continuing slide in overall market share it's not entire unexpected. Overestimate of production, or the ability to use 100% capacity for a short time (1 quarter or so) will become the norm. And supply chain managers in all organizations use excess capacity arguments to drive prices down - it's a very common technique.