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Apple’s Power Play

Could you imagine having enough clout to keep a slew of contract manufacturers on edge for months until between two weeks and 60 days before a product launch? Apparently that's {complink 379|Apple Inc.}'s secret to keeping supply chain practices under wraps for as long as it can before products ship, according to Richard Doherty, research director of consulting firm {complink 9896|The Envisioneering Group}, a technology assessment and market consultancy.

I had this conversation with Doherty after learning that Apple, which endorses near field communication (NFC) technology, will likely integrate NFC into the next version of its operating system. I had originally thought they would develop a proprietary technology, but knew it would behoove them to go with the same frequency as other companies such as {complink 2294|Google} and {complink 3847|Nokia Corp.}. Boldly Doherty asserts, “Anyone who says they know for certain Apple's product plans is lying.”

Executives at dozens of contractors and subcontractors sweat every day waiting for that blessed email telling them they will produce 6.9 percent of the iPad or iPhone. Doherty bases this belief on conversations with people at contract manufacturers like {complink 2125|Foxconn Electronics Inc.} and others in Taiwan, China, and Japan who work on components and boards they expect Apple to build into products like the iPad and iPhone. This is the case not only for Apple, but for other companies, too, such as Google. These contract manufacturers build the devices in hopes OEMs will come along and want the goods.

It sounds like a build-it-and-they-will-come scenario. The electronics manufacturing services (EMS) providers prepare and then wait for the congratulatory email or phone call from Apple and others awarding them contracts to build the devices. It's quite typical, Doherty says. Apple buys products from a half-dozen chip suppliers, but none knows until a few weeks or months prior to the product release that it's won the contract.

Doherty, who claims to have known Steve Jobs, Apple's CEO, for 27 years, says Apple works its magic with pricing by having a special pull. If a company supplies something for the iPhone, and the catalogue price for the highest volume is $1.10, “Jobs will call up and say we'll pay you 90 cents. The companies give Apple the discount because it brings other OEMs to the contractor.”

The EMS companies just want to be part of the new iPod, iPhone, iPad, or connector device. Tell me your Apple stories. Do you supply products or manufacture parts? Have you worked at an OEM? What's it like to distribute product for the “Big A”? What are your thoughts about finding out two weeks to two months in advance that you're part of the product process? Is that enough time to adequately plan, or do you think products and resources are thereby wasted?

10 comments on “Apple’s Power Play

  1. Barbara Jorgensen
    January 27, 2011

    Laurie–great job and fascinating stuff. I think Apple is in the minority in having this level of clout. It used be be Dell, HP, Cisco and a few others that could say “jump” and the collective supply chain would say “how high?” I think many OEMs ceded this power when they went to the ODM model or broke themselves into smaller businesses. Apple's business model in many ways is contrary to the overall trend in electronics (as Dell's used to be) and I'd guess I'd say “the more power to 'em.”

  2. Tim Votapka
    January 27, 2011

    Ditto Barbara's comment on this. I can think of many aerospace companies that could've asked for the moon in their glory days and got it from their subs. Only difference is when Apple says “jump” the good subcontractors are already in the air.

  3. AnalyzeThis
    January 27, 2011

    I haven't really worked with Apple yet (although it looks like I'm about to!), but I've heard some great stories of what it is like to work with Steve Jobs.

    My old boss at a previous position worked at Apple, and he had all sorts of great stories.

    I won't re-tell any of the specific tales, but many of them centered on Steve's near-insane attention to detail.

    I completely believe that Steve is able to call a company, ask for a discount, and get it, but not only that… I am certain that if that company fails to deliver the highest quality product, on-time… they're done. Apple will never work with them again.

    And that would be very bad. As you mentioned, working with Apple results in other additional business coming in, but the opposite is also true: supplying Apple with a sub-par component could very well destroy your company.

    So when Apple calls, you absolutely have to jump through their hoops. The short lead-times, the discounted prices… they're one of the very few companies that must be treated like this. It's a great situation for Apple!

  4. Laurie Sullivan
    January 27, 2011

    Tvotapka – “the good subcontractors are already in the air.” I love it!

  5. Laurie Sullivan
    January 27, 2011

    DennisQ – what are your plans to work with Apple? In what capacity? How will your company support the Big A (as in computer and media devices) 

  6. Laurie Sullivan
    January 27, 2011

    Anyone have any more stories? I, and EBNOnline.com readers, would like you to share. 

  7. AnalyzeThis
    January 27, 2011

    @Laurie, even though I'm basically anonymous here, I would really rather not get into too much in the way of specific details. I'm sorry!

    As I just said below, working with Apple is a whole different ballgame! And they certainly aren't a fan of leaks, look what happened with the whole Gizmodo incident.

  8. Anand
    January 28, 2011

            Laurie Sullivan, Interesting article, never knew Apple has so much of command over its suppliers. In my opinion contract manufacturers should think beyond “APPLE”, why not some ORANGES or GRAPES ?

    Jokes apart I feel this deal is slightly skewed. What if you will never get call from Jobs ?, All your effort in manufacturing is waste of time and money. I am sure there are hundreds of contract manufactures who are lined to be part of APPLES growth story, so probability of particular contract manufacturer getting selected is very less.

  9. Hardcore
    January 28, 2011

     I 'bumped' into some of the fox-con guys just outside of Shenzhen whilst they were entertaining. I am surprised that you do not think it is any other way.

  10. Himanshugupta
    January 29, 2011

    it seems that we will not hear any interesting stories of 'way of working' in Apple. I am not sure about the whole iPhone incident. Some section of the bloggers said that the leak was intentional. But no one knows for sure, or atleast say it publically.

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