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Benefits Low cost

Apple (AAPL) is well known among consumers for its innovations and high product quality. But there is a third source of success: low cost manufacturing, due to its scale and pre-purchase agreements with component suppliers. As discussed in a recent New York Times article, Apple buys the components for its products ahead of time reaping off two kinds of benefits. First, deep discounts. Second, it reduces the supply of components available to competitors that buy components on the last momentand eventually and up paying a higher price that pushes the cost of their products higher. Apples strategy that is financed by its $80 billion cash chest, gives the company a cost advantage over competitors that allow the company to quickly cut the price of its models undercutting the competition. Customers, for instance, can buy Apples iPhone 4S for $199, providing that they sign a two-year contract with a provider, slightly lower than Samsungs (SSNLF.PK) Galaxy II, and way lower than Motorolas (MMI) Droid Bionic model. There is a downside to this strategy, however. Should demand for Apples devices drop unexpectedly, due to a severe economic downturn, Apple may be in for big losses, as was the case with Cisco Systems (CSCO) back in the early 2000. Company Apple Motorola Samsung Model iPhone 4S Droid Bionic Galaxy II Price $199 $300 $230 Service Provider AT&T (T) Verizon (VZ) T-Mobile

The bottom line: What makes Apple an unbeatable company isnt just innovation and product quality, but lower production costs that are eventually passed on to its customersstrengthening its competitive advantage, and helping its stock head northa good reason for investors to stay long with the stock.

Price influence
Hugh Pickens writes"Nick Wingfield writes in the NY Times that Apple's present pricing strategy is a big change from the 1990s, when consumers regarded Apple as a producer of overpriced tech baubles, unable to compete effectively with its Macintosh family of computers against the far cheaper Windows PCs. Now within the premium product categories where Apple is most at home, comparable devices often do no better than match or slightly undercut Apple's prices. 'They're not cheap, but I don't think they're viewed as high-priced anymore,' says Stewart Alsop. Winfield writes that Apple uses its growing manufacturing scale and logistics prowess to deliver Apple products at far more aggressive prices, which in turn gives it more power to influence pricing industrywide, and one of

Apple's pricing secrets has been it's willingness to tap into its huge war chest $82 billion in cash and marketable securities last quarter to take big gambles by locking

Apples Lower Prices Are All Part of the Plan


By NICK WINGFIELD Published: October 23, 2011

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Something unexpected has happened at Apple, once known as the tech industrys highprice leader. Over the last several years it began beating rivals on price.
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Apple uses its growing manufacturing scale and logistics prowess to deliver products like its iPhone 4S at aggressive prices. Enlarge This Image

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People who wanted the latest Apple smartphone, the iPhone 4S, were able to get one the day it went on sale if they were willing to wait in a line, spend at least $199 and commit to a two-year wireless service contract with a carrier. Or they could have skipped the lines and bought one of the latest iPhone rivals from an Apple competitor, as long as they were willing to dig deeper into their wallets. For $300 and a two-year contract, gadget lovers could have picked up Motorolas Droid Bionic from Verizon Wireless, or they could bought the $230 Samsung Galaxy SII and $260 HTC Amaze 4G, both from T-Mobile, under the same terms. Apples new pricing strategy is a big change from the 1990s, when consumers regarded Apple as a producer of overpriced tech baubles, unable to compete effectively with its Macintosh family of computers against the far cheaper Windows PCs. But more recently, it began using its growing manufacturing scale and logistics prowess to deliver Apple products at far more aggressive prices, which in turn gave it more power to influence pricing industrywide. Apples innovations including products like the iPhone, iPad and the ultrathin MacBook Air notebook are justifiably credited for their role in the companys resurgence under its chief executive and co-founder, Steven P. Jobs, who died on Oct. 5. But analysts and industry executives say Apples pricing is an overlooked part of its ability to find a large audience for those products beyond hard-core Apple fans. Apple sold more than four million iPhone 4S smartphone over its debut weekend. People can still easily find less expensive alternatives, with less distinctive and refined designs, to most Apple products. Within the premium product categories where Apple

is most at home though, comparable devices often do no better than match or slightly undercut Apples prices. Theyre not cheap, but I dont think theyre viewed as highpriced anymore, said Stewart Alsop, a longtime venture capitalist in San Francisco. Apple declined to comment for this article. Prices in the ultrathin notebook category are an illustration of Apples strategy. While there are much cheaper laptops for sale, ranging all the way down to bargain-basement netbooks that cost a few hundred dollars, Apples MacBook Air has become a hit among computer users seeking the thinnest and lightest notebooks available. The product starts at $999 for a model with an 11-inch screen. On Oct. 11, the Taiwanese computer maker Asus introduced its answer to the MacBook Air, a sleek device that uses Windows. But it was unable to undercut Apple; the Asus computer also starts at $999. Samsungs wafer-thin Series 9 notebook, with comparable features, costs $1,049. The computer maker Acer, however, began undercutting the cheapest MacBook Air this month with an $899 ultrathin notebook, the Aspire S series, that has a bigger screen. The original MacBook Air catered to a more rarefied audience when it came out in early 2008, priced at a whopping $1,799 for a model with a 13-inch screen. A year ago Apple revamped the notebook to make it thinner and smaller and reduced its entrylevel prices to $999 and $1,299 for models with 11-inch and 13-inch screens. JeanLouis Gasse, a venture capitalist and former Apple executive, said there was a collective gasp at how low Apple priced the new MacBook Air. The aggressive pricing, analysts say, reflects Apples ability to use its growing manufacturing scale to push down costs for the crucial parts that make up its devices. Apple has also shown a willingness to tap into its huge war chest $82 billion in cash and marketable securities last quarter to take big gambles by locking up supplies of parts for years, as it did in 2005 when it struck a five-year, $1.25 billion deal with manufacturers to secure flash memory chips for its iPods and other devices. By buying up manufacturing capacity ahead of time, Apple forces its competitors to scramble for the parts that are still available, raising costs for their products, analysts say. Apple is the biggest buyer of flash memory chips in the world, according to the research firm iSuppli.

Mr. Gasse said Apples pricing decision on the MacBook Air made it clear that Apples management of its supply chain had become a strategic weapon. Another example of that was Apples decision to price the entry-level iPad at $499 when it was introduced early last year, hundreds of dollars lower than many analysts expected. I think everyone was stunned at the cost of the iPad, said John Gallaugher, an associate professor of information systems at Boston College. It was a very competitively priced device. For a time, Apples biggest competitors were unable to go below the iPads price with their own tablets. When Motorola Mobility Holdings Xoom tablet hit the market in February, the cheapest model available without a wireless service contract was $800. Motorola later released an entry-level model with more storage than the least expensive iPad, priced at $599. After lackluster sales, Apples major competitors are now finally undercutting the iPad on price, though it is not clear how sustainable that approach is. Motorola recently announced a plan to offer an entry-level Xoom tablet for $379 at Best Buy stores for a limited time. After Hewlett-Packard, having missed sales goals, announced plans to discontinue its TouchPad line of tablets, it dropped the price of its cheapest model to a fire-sale $99. The most credible challenge to the iPad is likely to come from Amazons $199 Kindle Firetablet, which goes on sale in November. While analysts say they believe Amazon will lose money on each device sold, the Internet retailers plan is to use the device to encourage purchases of other Amazon products and services, like e-books. Toni Sacconaghi, an analyst at Sanford C. Bernstein & Company, said the price of the iPad reflected a mind-set change at Apple after the introduction of the first iPhone in 2007, which started at $499. That was an eye-popping sum for a phone in markets like the United States, where people had become accustomed to getting lower-price, carrier-subsidized phones in exchange for committing to long wireless contracts. Only a few months after the product went on sale, Apple cut $200 off the price of the high-end model of the iPhone, to $399. Apple shifted gears again in 2008 with a new model called the iPhone 3G that it priced at $199, after beginning to accept handset subsidies from its carrier partners, something it did not do with its first version of the phone. Carriers pay Apple more for the latest iPhones around $600 each, analysts estimate aiming to profit by locking consumers into wireless plans.

Mr. Sacconaghi said Apples pricing of the original iPhone and its exclusive distribution deal with AT&T in the United States at the time created an opening for Google and its handset partners to flood the market with phones running its Android operating system. While Apples iPhone business is thriving, Android handsets accounted for 43.4 percent of the worldwide smartphone market in the second quarter, compared with 18.2 percent for Apple, the research firm Gartner estimates. Many carriers now offer older Android handsets that cost customers nothing if they sign up for two-year contracts. And now even Apple is getting into that act: when it announced its latest iPhone model this month, it said its two-year-old iPhone 3GS would be free with a two-year contract.
A version of this article appeared in print on October 24, 2011, on page B1 of the New Yo

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Apple's hidden competitive advantage


The company's products are amazing, but where Apple really shines is the way it can produce so efficiently and seamlessly. CEO Tim Cook deserves much of the credit.

By Jim J. Jubak Sep 18, 2012 6:05PM

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I'm going to up my target price on Apple (AAPL). When I last wrote about Apple on Sept. 14, I pointedly didn't change my then $650-a-share target price. I'm upping the target to $760.

What's changed?

Well, I've certainly been impressed with the way that Apples new iPhone 5 has jumped off the shelves (well, actually off the pre-order list since the phone doesnt actually go on sale until Sept. 21.) More than 2 million customers have placed orders for the iPhone 5 in the first 24 hours. Thats double the pre-orders placed in a similar time period last year for the iPhone 4S.

But that's not the reason.

And Ive certainly noticed that Wall Street analysts have been very busy increasing their projections for sales to the end of the quarter. Monday, for example, Canaccord Genuity raised its sales forecast to 50 million iPhone 5 units by the end of 2012.

But thats not the reason either.

Its the story that I havent read -- so far -- that has impressed me. Right now it looks like Apple is going to be able to meet this outpouring of demand without a huge disruption. Thats quite frankly amazing for a technology sector where product companies like Apple do very little -- if any -- of their own manufacturing and where parts suppliers and product assemblers have a history of running so close to the bone that all it takes is a bit of unexpected demand to throw a product introduction into a chaos of missed orders, supply shortages -and missed sales.

Apple has minimized its own exposure to this problem by investing a big hunk of its $7.1 billion in capital spending for 2012 in enhancing its supply chain.

"Enhancing its supply chain" is kind of vague, I know, so here's how it works for Apple. Apple approaches the company that it has picked to manufacture some piece of the iPhone and says, "Hey, to be one of our key suppliers we want you to buy new equipment to make components for us. We'll even buy that equipment for you to install in your own factories and to operate with your own people. All you have to do is give us a guarantee that youll meet our demands for your components on our schedule and that youll share any cost savings from this new equipment with us by cutting the price of the components you make for us."

Not surprisingly, very few of the companies that make something critical for the iPhone 5 say no to a deal like this. By funding the cost of new equipment itself, Apple takes much of the risk out of the component makers business. By giving the component maker a huge advance order to be made on the best new equipment that that Apple can find, Apple gives component makers a chance in increase their own margins. And by investing at critical points all up and down the supply chain Apple decreases the odds that a component maker will wind up sitting on inventory because some other iPhone 5component maker wasnt able to meet its schedules.

But the advantages to Apples supply chain investing strategy dont stop there. (By the way, before Tim Cook took over as CEO from Steve Jobs he was in charge of operations, including the management of the companys supply chain, at Apple.) Remember those savings that the component makers get from the new equipment and the guaranteed high volume orders? Well, some of that gets passed along to Apple. Morgan Stanley analyst Katy Huberty estimates that this could translate into cost savings of 15% to 20% a year. That would, of course, drop down to the bottom line for a product that already accounts for 70% of Apples profit. And that added margin gives Apple a lot of room to negotiate any gradual decline in the price of its iPhones.

And thats why, Im raising my target price on Apple, a member of my Jubaks Picks portfolio, to $760 a share by May 2013.

omething that annoys me to no end is when I read articles lauding Apple's supposedly amazingly fantastical supply chain. Really? How? Pray tell, Tim Cook.

So Apple builds a bazillion iPads, iPhones, iMacs, and what not at a handful of factories in China operated by a third party that treats its employees so well that they have a habit of jumping off the roofs of their dormitories. To manage this process they send planeloads of engineers from Cupertino, and Steve Jobs once proclaimed that one reason they're in China is because there's no place else they could wake thousands of engineers at 1am and get them onto a line to solve a problem. Sounds like a very traditional supply chain to me, albeit one executed spectacularly well. But still traditional - outsource and chase "cheap" labor. I could tell you about a few toy companies that do that equally well. Come to think of it... Angry Birds and iPads... I may have finally found a kindred spirit - Steve Banker at Logistics Viewpoints. Many supply chain professionals consider Apples supply chain to be the best in the world. I dont. The reasoning appears to be that since Apple is one of the fastest growing and most profitable companies in the world, it must surely have one of the best supply chains too. This is a halo effect fallacy. Steve goes on to explain how Apple executes a traditional supply chain very well - and leverages opportunities that other companies can't. On the advantage side, demand management is easier. Apple doesnt have to get the demand forecast for a new product right. As long as it underestimates demand for a hot new product, Apple will have loyal customers clamoring for the new devices and willing to wait. In fact, the projected backlog leads customers to line up for hours before stores open to buy a new product. In other words, mismanaging demand, intentionally or not, actually helps Apple and increases profit. Such a deal! Anyone else able to do that? Because Apple has become so large, it has procurement advantages smaller rivals cant match. Samsung lost $10 billion in market value when Apple placed a huge order for flash memory with Elpida, securing more than half of that companys supply. Apple invests in capital equipment to make these special components (the company lends the production equipment to its manufacturing partner). At times this production machinery becomes Apple exclusive either because of exclusivity agreements or because Apple is so large that a backlog for the equipment becomes horrifically long. Remember when Apple was gearing up the new MacBook with the solid aluminum case, and that tied up a large percentage of the global supply of new CNC machines? Steve Banker goes on to describe the ongoing labor issues at Apple's outsourcing partner Foxconn. We all know what's going on. And Steve also describes the supply chain risk of building the vast majority of products in a few factories just

a few miles apart. In a country where wage inflation is starting to take its toll, social upheaval is increasing, and the government is beginning to scrutinize - and change - key business practices. And now a key component comes from across the strait, Taiwan. A traditional supply chain executed very well. Not innovative or fantastic by any means. If Apple had a truly innovative and fantastic supply chain they wouldn't have employees jumping off of buildings. For starters they'd do more than cursory monitoring of employee working conditions. They wouldn't need to wake thousands of engineers at 1am to fix a problem - those types of problems would have been caught and removed by design or (horrors!) inspection long before production was impacted. Factories would be close to customers, with a geographic risk mitigation strategy - maybe someday that rumor of a second factory in Brazil might actually become true. Plane loads of support engineers, let alone the presumably millions of minutes of conference calls across have the globe with associated translators and such, wouldn't be necessary. But probably what bothers me the most, and in my mind the number one indicator of an average supply chain at best, is the perceived need to chase low "cost" labor. To build a very high margin product, no less. What is really the labor content in an iPad? Why is that? I can tell you of many, increasingly many, companies that manufacture very successfully from high-cost North America some even from my home state of California. High margin tech products to furniture and clothing. Somehow Apple can't figure out how to do that - let alone the value in doing that. Instead they live with "Designed in USA, Manufactured in China." And with an unnecessarily complex supply chain spanning the globe to build in a geopolitically risky location with employees jumping off roofs and products being shipped in large batches across oceans. Not to mention not understanding the difference - and lost opportunity - between "cost of labor" and "value of smart, experienced people." Apple has $100 billion in the bank - imagine the truly innovative supply chain that could be created by investing a tiny fraction of that. Come to think of it, "a traditional supply chain executed very well" may be too generous.

Read more: http://www.evolvingexcellence.com/blog/2012/07/apples-averagetraditional-supply-chain.html#ixzz29PcB8jBp at Evolving Excellence

Investing In The iPhone 5 Via Apple's Suppliers: 2 Names To Consider


September 5, 2012 | includes: A, AAPL, ARMH, AVGO, BRCM, CRUS, HPQ, OVTI, QCOM, SNE
Disclosure: I am long AAPL, QCOM. We may initiate a position in either OVTI orAVGO (or both) within the next several trading days. (More...)

The iPhone has generated billions in profits for Apple (AAPL) since it was introduced, and has helped Apple become the world's largest company by market capitalization. And with the iPhone 5 set to be released Sept. 12, Apple's position in the smartphone market seems secure. However, investing in Apple is not the only way to profit from the release of the new iPhone. Apple's suppliers have also been rewarded by their relationships with the company, and with the iPhone 5 seen by many analysts as the largest consumer electronics launch in history, Apple's suppliers are set to do thrive in the next several months. We want to highlight three of them here that may be overlooked by investors. When one thinks of Apple's suppliers, several names immediately come to mind: Qualcomm (QCOM), Broadcom (BRCM), and Cirrus Logic (CRUS). And while we believe that all three of these companies are worthwhile investments, they are not the only companies that can thrive as part of the Apple ecosystem. We would like to highlight two companies that also have the potential of thriving as part of this world: OmniVision Technologies (OVTI) and Avago (AVGO). OmniVision and Apple: A Dramatic Relationship The largest Apple suppliers, such as Qualcomm and Broadcom, have very little to worry about when it comes to their relationship with Apple. This is due in large part to the fact that their components are essential in constructing Apple's "iDevices." There is little chance that either Qualcomm or Broadcom will be ousted from their positions in Apple's device lineup. OmniVision, however, does not have such certainty. OmniVision produces camera and imaging sensors for several smartphone lines, including the iPhone. And while OmniVision has benefited at times from its dealings with Apple, over the past five years its investors have not. Click to enlarge images.

It is much easier for Apple to replace OmniVision's technology than it is to replace technology from Qualcomm or Broadcom. And this is reflected in OmniVision's share price, which rises and falls along with investor sentiment toward the company's relationship with Apple. In 2011, sharesplunged as the company's place in the iPhone 4S was claimed by Sony (SNE). However, OmniVision's latest quarterly results offer proof that the company has put itself back into Apple's good graces, and we believe that the next several quarters should be a time of prosperity for OmniVision.

On Aug. 30, OmniVision reported its Q1 2013 (fiscal) results. The company posted EPS of 21 cents per share on revenues of $258.1 million,missing EPS estimates by a penny and beating on the top line by $15 million. But Q1 results were not the biggest focal point of the company's earnings call. OmniVision's Q2 guidance was what mattered. The company guided for revenues of $355 million to $390 million and EPS of 21-37 cents per share, compared to consensus analyst estimates of 33 cents in EPS and revenues of $268.6 million. OmniVision smashed revenue forecasts while also missing EPS estimates (at the midpoint of guidance). This implies that the company has won huge new contracts, which are pressuring margins in the short term. OmniVision forecasts gross margins of around 17% for the next quarter, its lowest ever. During the call, CFO Anson Chan stated that demand for the company's new BSI-2 sensors is so strong that its manufacturing partners are being forced to rush installation of new manufacturing equipment to meet demand. This is pressuring margins at the moment, but this model does indeed have leverage. During the call, OmniVision stated that it expects to mitigate the supply/demand mismatch for its new sensors by the end of the year, noting that demand continues to outweigh supply at the present moment. Apple is known to drive a hard bargain with its suppliers, but that is the price suppliers must pay for doing business with the company. However, we think the iPhone 5 will be a winner for OmniVision, and management's commentary backs up this assertion. While the company never mentioned the iPhone by name during its call, it is clear to everyone that the iPhone is the driver of both OmniVision's sales growth and its lower margins. Needham (which has a buy rating and $21 price target on OmniVision)notes that, at a minimum, OmniVision is likely to be supplying the front-facing 1.3-megapixel camera on the iPhone 5, given the company's upbeat commentary about that subset of the market. The firm also believes that here is a strong likelihood that OmniVision has recaptured the 8-megapixel back camera. While fiscal 2013 is set to be a transition year for OmniVision, fiscal 2014 will be a record year for the company, and a buying opportunity may be at hand. As of this writing, OmniVision trades for just 13.71 times fiscal 2013 EPS and 10.07 times fiscal 2014 EPS.

Those ratios become even lower when the company's $314.309 million in net cash and investments are excluded. Based on those figures, and OmniVision's outstanding shares, the company has net cash and investments of $5.94 per share, which is over 36% of its current market capitalization. OmniVision's shares have been battered by worries about is relationship with Apple. However, recent indicators suggest that OmniVision is once again part of the Apple ecosystem, and we believe that in the quarters to come, the OmniVision's share price will rise to reflect these changing dynamics. Avago: Profiting Under the Radar When investors think of the technology companies that benefit the most from dealing with Apple, the same batch of names usually comes up. Qualcomm. Broadcom. ARM Holdings (ARMH). Cirrus Logic. But there is one name that is rarely mentioned, and it is one that we would like to highlight. That company is Avago Technologies. Avago was founded in the 1960s as Hewlett-Packard's (HPQ) component division, and was

spun off alongside Agilent Technologies (A) in 1999. In 2005, Avago was bought by KKR and Silver Lake, and the company began trading on the Nasdaq in 2009. Avago is a relatively new Apple supplier, having made its first meaningful impact in the iPhone 4S, where it supplied the phone's power amplifier module. While Avago has dramatically outperformed the S&P 500 since it began trading in 2009 (up 114% vs. 43% for the S&P 500), shares have underperformed over the past year, rising by just 13%, compared to an advance of nearly 25% for the S&P 500.

However, we feel that with the launch of iPhone 5, Avago can break out of its recent range. Avago reported its Q3 2012 (fiscal) results on Aug. 16. The company posted EPS of 72 cents on revenues of $606 million, both of which beat estimates (63 cents in EPS on revenues of $600 million). On the surface, Avago's guidance was not that impressive. The company guided for sequential revenue growth of just 0%-3% for Q4 2012, hardly the kind of growth that investors would expect to see from an Apple supplier around the launch of a new iPhone. However, Avago's revenue growth is blurred by several changes to its business model. The company is transitioning to a licensing and royalty model for its computing and consumer peripherals division, which will reduce quarterly revenues by about $30 million. Avago's wireless division, however, is set to post solid growth of between 20% and 30% in Q4, driven by growth in iPhone shipments. Avago's exposure to the iPhone is not the only reason to buy shares, however. As Sterne, Agee & Leach notes in its latest research update on Avago (the firm has a buy rating and $44 price target), the company's solid free cash flow provides a "third leg" to the bullish thesis for the stock, one that is underappreciated by the market (rising iPhone sales will also lead to a boost free cash flow). An analysis by Sterne, Agee & Leach shows that Avago can generate $2 of free cash flow per share, and "a net-cash-flow per share post buybacksdividends of a still incremental $1-$2 per share per year." Avago has $973 million in cash and investments on its balance sheet and just $3 million of capital lease obligations. That is equivalent to $3.88 in net cash per share, or 11.03% of Avago's market capitalization. As was the case with OmniVision, this will be a transition year for Avago as the company makes changes to its business model. Earnings per share are expected to fall by 0.78% in 2012, and grow by 11.86% in 2013.

As of this writing, Avago trades at 13.91 times estimated 2012 earnings, and 12.43 times estimated 2013 earnings. We are bullish on Avago not only because of its financial strength, but because its relationship with

Apple is relatively new. Even though shares have more than doubled since the company began trading, there is likely a good deal of upside remaining. Adding in a strong balance sheet and a growing dividend (the stock currently yields 1.82%, and the quarterly payout of 16 cents has more than doubled from 7 cents in 2010) makes shares of Avago even more attractive at current levels. Conclusions Investors need to look beyond the usual suspects when it comes to investing in the Apple ecosystem. While companies such as Qualcomm and Broadcom are solid investments (we own shares of Qualcomm), they are far from the only way to profit from Apple's iDevices. Companies such as OmniVision and Avago are also poised to thrive thanks to Apple, and we believe that investors should take a close look at both companies. In the next several days, we will be examining our exposure to the Apple ecosystem and may buy shares of these companies. In our view, both companies have their best days ahead of them, and with seven days left until Apple launches the iPhone 5, the time to consider adding to or initiating positions in OmniVision and Avago is at hand.

Apple Profit Rises on Higher iPhone and iPad Sales


By NICK WINGFIELD Published: April 24, 2012

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Not long after the iPhone came out, skeptics questioned how much appeal the costly device and related wireless service would have in countries like China with lower income levels. On Tuesday, Appleprovided the answer: A lot.
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An iPhone poster in Beijing. Apple said iPhones sales rose 88 percent in the quarter. Enlarge This Image

Shannon Stapleton/Reuters

Closing an iPad sale at Apples Fifth Avenue store. Apple sold 11.8 million iPads in the second quarter, doubling sales from the same period a year ago. In all, Apple has sold 67 million iPads.

The company reported Tuesday that soaring sales of the iPhone, especially in China, helped Apple nearly double its profit in the companys fiscal second quarter. Apple said it sold 35.1 million iPhones in the quarter, an 88 percent increase from the period a year ago. It sold 11.8 million iPads, more than double the number it sold in the same quarter last year. It was an incredible quarter in China, Timothy D. Cook, Apples chief executive, said in a conference call with Wall Street analysts. It is mind-boggling that we could do this well. For the quarter that ended March 31, the company reported net income of $11.62 billion, or $12.30 a share, compared with $5.99 billion, or $6.40 a share, in the period a year earlier. Apples revenue was $39.19 billion, up from $24.67 billion a year ago. Mr. Cook said that Apples quarterly revenue from China was $7.9 billion, about 20 percent of total company revenue. Furthermore, that was triple Apples China sales in the same period a year ago. In contrast, Apples China sales during its last fiscal year were about 12 percent of total revenue. Two years ago, Apple sales in China were 2 percent. China has grown from a rounding error to a massive new market, said Robert Cihra, an analyst at Evercore Partners. Their premium price point clearly has not been any hurdle to them growing there. Mr. Cook said that enormous numbers of people moving into the middle class in China were creating demand for goods including the iPhone. He said Apple was doing everything it could to serve the market. The iPhone 4S went on sale in China on Jan.

13, near the beginning of the last quarter, and starts at nearly $800 without a wireless plan, though it is available free with a multiyear carrier contract. Since becoming chief executive of Apple last fall, Mr. Cook has repeatedly identified China as one of the biggest growth opportunities for Apple. The growing appetite for Apples products among Chinese consumers comes at a time when Apple is working with manufacturing partners and parts suppliers to improve working conditions in factories in countries like China, where most Apple products are made. Apple executives also said demand for the newest version of the iPad, released by Apple last month, was outstripping supply of the product, leading to shortages. They said it remained their fastest-growing business and that Apple had sold 67 million of the device since the first model went on sale in 2010. Mr. Cook said it took 24 years for Apple to sell an equivalent number of Macintosh computers. In the education market, one of the strongest for the Mac, Apple said it sold two iPads for every Apple computer. In one example, the San Diego school district bought 10,000 iPads during the last quarter, with plans to buy 15,000 more in the current quarter, according to Apple. Apple previously told Wall Street to expect earnings of $8.50 a share and revenue of $32.5 billion for the quarter. But as they do nearly every quarter, analysts viewed Apples official figures as lowball estimates and came up with their own more bullish forecasts. On average, analysts surveyed by Thomson Reuters expected Apple to report earnings of $10.06 a share and revenue of $36.81 billion for the quarter. Investors in Apple had grown increasingly skittish about Apples performance in the weeks before the earnings report, sending its shares down from a high of $636.23 on April 9 to $560.28 at the close of regular trading on Tuesday. Among their chief concerns were research data showing weak sales of the Macintosh computer and worries about whether iPhone sales could keep up their momentum. But immediately after the results from Apple came out, its shares shot up nearly 7.4 percent in extended trading. Even after the jitters of the last several weeks, Apples shares are up 38 percent for the year and the company remains the worlds most highly valued company.

Some investors fear a repeat of a pattern from last year, when Apple said it lost some sales of the iPhone because of a steady escalation of rumors about the release of a new model. Those rumors were accurate; Apple announced the iPhone 4S in early October. There is widespread speculation that Apple will again introduce a new version of the iPhone in the fall and that consumers might wait for its release so they can get the latest gadget. The iPhone has become an engine of Apples growth over the last two years, accounting for almost 40 percent of the companys revenue during the quarter. Gene Munster, an analyst at Piper Jaffray, said a slowdown in iPhone sales in the months ahead of an expected fall or summer release of a new version remained likely. You can count on that, said Mr. Munster. As it does in most quarters, Apple again tempered expectations with analysts. In the companys current quarter, Apple said it expected to report earnings of $8.68 a share and revenue of $34 billion. The company also said its hoard of cash and cash equivalents rose to more than $110 billion. Apple has said it intends to slow the growth of its cash through investor dividends and share buybacks.

vSofter Sales of iPhones Hurt Apple


By NICK WINGFIELD Published: July 24, 2012

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It looks as if many people are so sure the next iPhone is going to be good that they are not buying the ones Apple is selling now.
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Times Topic: Apple Incorporated

A lot of companies would love to have that problem if it can be called a problem, given that Apple still managed to sell 28 percent more iPhones last quarter than it did a year earlier.

Yet in the world of outsize expectations that envelops Apple, it still contributed to a rare earnings disappointment from the company. In response to the earnings report on Tuesday, Apple investors registered their unhappiness with the results by sending its shares down more than 5 percent in afterhours trading. In the regular session, the stock fell 2.9 percent, to $600.92. The iPhone appeared to be the main issue. In a now-familiar pattern, analysts have been warning of potential weakness in iPhone sales because of the likelihood that the company would introduce a new version of the phone in the fall. Apple invariably brings out a new model around that time, and the anticipation can cause many phone shoppers to delay their purchases, leading to a surge in the holiday quarter. In a conference call with analysts, Apple executives blamed economic weakness in Europe, Australia, Brazil and other countries for some of the shortfall in iPhone sales. But the company also said that the widespread chatter about whatever smartphone it will sell next was a significant factor. Were reading the same rumors and speculation you are about a new iPhone, said Peter Oppenheimer, Apples chief financial officer. In the past, Apple has felt the pain of delayed iPhone purchases most acutely in the summer quarter that ends in late September, but it can also start before then. Were seeing it earlier than ever, said Gene Munster, an analyst at Piper Jaffray, who predicted Apple would sell 29 million iPhones, rather than the 26 million it ended up reporting. It is possible Apple is losing some business to other smartphones, most likely devices running Googles Android operating system, which have built a substantial following. But Apple is still expected to gain market share this year. Apples share among smartphone users in the United States is expected to reach 31 percent in 2012, up from 30 percent last year, according to eMarketer, a firm that compiles data from technology research firms. Rob Cihra, an analyst at Evercore Partners, said the iPhone was increasingly evolving into a business that has two quarters of gigantic sales, followed by two weaker ones, in which customers wait patiently for a new model. But Mr. Cihra said it would be far more worrisome if customers did not show so much enthusiasm about Apples next move.

Thats the price of having an incredibly popular consumer product, he said. Timothy D. Cook, Apples chief executive, said there was not much Apple could do about the phenomenon beyond trying to keep its plans secret. Im glad people want the next thing, he said. Im not going to put any energy into trying to get people to stop speculating. The newest pillar of Apples business, the iPad, has started to take some of the pressure off the iPhone to dazzle investors every quarter. For the fiscal third quarter ended June 30,Apple said it sold 17 million iPads, bringing in revenue of $9.17 billion, compared with nine million iPads and $6.05 billion in revenue a year ago. Those sales got a lift from a new version of the iPad with a higher-resolution display that Apple introduced in March. The iPad now accounts for 26 percent of Apples total revenue. Mr. Cook added that Apple would release the latest version of its Mac operating system, Mountain Lion, on Wednesday. Apple reported net income of $8.82 billion, or $9.32 a share, up from $7.31 billion, or $7.79 a share, in the period a year earlier. Revenue was $35.02 billion compared with $28.57 billion a year earlier. The figures were above the $8.68 a share in profit and $34 billion in revenue that Apple had previously forecast for the quarter. But they fell well short of the estimates of Wall Street analysts, who typically take Apples own forecasts with a grain of salt because of the companys long history of underpromising and overdelivering on its financial performance. Analysts polled by Thomson Reuters had expected Apple to report earnings of $10.36 a share and $37.18 billion in revenue. But even the growth of the iPad still has not come close to dislodging the iPhones importance to Apple. It accounted for 46 percent of the companys revenue in the quarter, and, according to Mr. Cihras estimates, about 60 percent of its profits. Apple said it expects to report overall revenue of about $34 billion and earnings of $7.65 a share for the current quarter.
A version of this article appeared in print on

Storage Suckers
Youre paying way, way too much to get a little more space on your iPad and iPhone.
By Farhad Manjoo|Posted Thursday, July 12, 2012, at 6:11 PM ET

How big is your iPad? Courtesy Apple.com.

When Google unveiled its new tablet computer earlier this month, the company disclosed that it wouldnt be making much of a profit on the device. Thats partly true. This week iSuppli, a research firm that specializes in breaking down devices to determine the cost of their constituent parts, reported that Google and its hardware partner Asus spend about $159 to make the entrylevel Nexus 7. That model holds 8GB of data and sells for $199. When you consider all the additional costs of selling the gadgetsoftware, marketing, licensing, packaging, and the $25 of Google Play credits that come with the tabletits quite likely that Google is making very little on every 8GB Nexus 7 it sells. It might even be losing money. But thats only half of the story. Google also offers a higher-end model of the Nexus 7, this one with 16GB of storage that goes for $249. According to iSuppli, doubling the storage capacity of the tablet costs Google and Asus just $7.50. By charging you a premium price for a low-cost upgrade, Google turns its cheap tablet into a nice moneymaker. If you fall for the 16GB model, youre Googles sucker. Its not just Google. Charging a lot of money for extra storage on phones and tablets has become a significant source of the tech industrys profits. Theres only one company to blame (or credit) for this trend: Apple, of course. Ever since the days of the iPod, Apple has boosted its bottom line through upgrades. The company offers the entry-level versions of its devices at a price that seems reasonable to many people. This entry-level price functions as a marketing come-ona way to get you in the store. Once youre there, your eye wanders to the next level. Is 16GB really enough space on my

beautiful new iPadwont I feel cramped on a year or two? Shouldnt I spring for more? Its only $100 . Thats exactly what Apple wants you think. Once you decide to move beyond the entry-level iPad, the companys profits soar. According to iSuppli, it costs Apple about $316 to make the low-end 16GB iPad, which the company sells for $499a margin of about 37 percent, not including non-manufacturing costs. Doubling the storage space to 32GB costs Apple $17 more, but it charges you $599 for that model, boosting its margin to 45 percent. On the high-end Wi-Fi model, which offers you 64GB of space for $699, Apples non-manufacturing profit margin shoots up to 48 percent. But thats not all! If you get an iPad with 4G cellular connectivity, youre really in for it. The very top-end iPad, a 64GB model with 4G, will set you back $829 for a device that costs Apple $408 to makea margin of 51 percent, or twice what Apple makes on the cheapest iPad. There may be other popular products that carry such a breathtaking markup, but I bet most of them are monitored by the DEA. These enormous profit margins prompt two questions. First, why do tech companies charge so much for just a few dollars of extra stuff? Second, are they ripping you off? The answers are pretty simple: They gouge you because they can. And of course youre getting ripped off! Try to remember this when you find yourself giving in to upgrade temptation. These days, for most people, upgrading to get extra space is usually overkill. Its easy to understand why storage upgrades are so tempting. Unlike PCs, phones and tablets are self-contained, locked-up devices. They carry the threat of obsolescence. If you run out of space on your desktop, you can always get an external hard drive. You cant do that on your phone: Once you find yourself with too many photos, apps, videos, and songs, you might have to start deleting stuff, and nobody wants to do that. I think that they want you to realize that since theyre giving you enough horsepower and resolution and features, youll find that 8GB probably isnt going to cut it, and youll make the impulse upgrade, says Andrew Rassweiler, an analyst at iSuppli. I dont want to call [the entry-level model] a false offering, but they expect a lot of people to upgrade out of necessity so that it improves their margins. The 8GB of storage that come with the Nexus 7s entry-level tablet doesnt sound like a lot, but I suspect its enough for most people. The 16GB of storage available on the cheapest iPad, meanwhile, should be more than plenty. Youll almost always use these devices when theyre connected to a broadband linewhen youre at home, work, or a coffee shopor when youre in between those locations. This means youll always be pretty close to virtually unlimited online storagethe splendors of Dropbox, Netflix, Spotify, iCloud, Flickr, Facebook, et also you wont need to keep all of your media on your tablet. On your cheap 16GB iPad, youll be able to keep the most important stuff with you all the time. For everything else, look to the cloud.

Now, I bet that more than a few readers will chime in to testify about their unquenchable appetite for more gigs. Perhaps your music collection is overwhelming. Perhaps you can never stand to be without tens of thousands of photos of your kid. Perhaps youre in the movie business and you need lots and lots of room for various cuts of your next blockbuster. Ill concede that the cloud just isnt good enough yetnetworks arent fast or reliable enoughto satisfy some power users, and for those people, paying $100 or $200 for extra space, even at a high markup, might be well worth it. But Im imploring you to take a minute to examine your needs. Dont upgrade on impulse. Chances are youre not a power user, especially if your tablet is meant to be a secondary device. If youre mostly using it around the house to browse the Web, even the Nexus 7s paltrysounding 8GB should suit you.
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Apple makes twice the profit margins on U.S. iPhone sales as it does iPad
By Chris Oldroyd, Friday, Jul 27, 2012 a 7:34 am 3

It appears that Apple is making huge profit margins on United States iPhone sales according to figures revealed in a court filing yesterday. Apple never reveals its profit margins on any of its products individually, for obvious reasons, so this revelation spotted by Reuters makes interesting reading. Apple Inc earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012. Between October 2010 and the end of March 2012, Apple had gross margins of 23 to 32 percent on its U.S. iPad sales, which generated revenue of more than $13 billion for Apple, the filing said. Apple does not typically disclose profit margins on individual products. The main difference with the iPhone compared to the iPad is the cell phone contract and the subsidies that the networks pay to Apple for each handset. This obviously must account for a large proportion of the increased profit margin on iPhone models. Or, conversely, Apple is forced to lower margins on the iPad to get it under $500 for the base model, since there's no one subsidizing those sales.

It will be very interesting to see how the alleged iPad mini would fit into the profit margin percentage range. If Apple is willing to accept half the profit margin on current iPads as it does iPhones, how low could they go for a 7-inch iPad? iMore has previously heard $200 is the floor. If Apple is willing to take a short term drop in profit to ensure long term gains in market share, it certainly looks like there's room to blow the competition out of the water all together. And most importantly, unlike Google with the Nexus 7 and Amazon with the Kindle Fire, which are sold roughly at or below cost, Apple might still make money off the sales. Love them or hate them, these court cases with Samsung are starting to revealsome really interesting information. Source: Reuters

Apple and Foxconn will share the costs of factory upgrades


Chinese assembler promises to improve conditions for workers
By Robert Jaques Thu May 10 2012, 12:48

CHINESE LABOUR SUPPLIER Foxconn Technology Group has sealed a deal with the Iphone designer Apple to share the costs associated with improving conditions for workers at its plants that assemble Iphones and Ipads in China. Foxconn CEO Terry Gou insisted that the Chinese manufacturing giant is working to improve conditions for its workers. "We've discovered that [improving factory conditions] is not a cost. It is a competitive strength," Gou told Reuters in Shanghai. "I believe Apple sees this as a competitive strength along with us, and so we will split the initial costs." However the Foxconn chief did not disclose additional financial details of the arrangement with Apple. The commitment comes after Foxconn promised to improve conditions at its plants, including cutting back workers' hours after a recent Fair Labour Association (FLA) inspection. As we reported earlier, this inspection prompted to company, which assembles devices for a number of firms in

addition to Apple, to say that it will reduce working hours to "legal limits" without reducing pay. It also promised to improve health and safety conditions for its million-plus workers, adding that staff would be given a "genuine voice" to make comments and complaints. The Fair Labour Association said that during its month-long investigation it found multiple issues at the company's factories. "The Fair Labor Association gave Apple's largest supplier the equivalent of a full-body scan through 3,000 staff hours investigating three of its factories and surveying more than 35,000 workers," said Auret van Heerden, president and CEO of the FLA. "Apple and its supplier Foxconn have agreed to our prescriptions, and we will verify progress and report publicly." Foxconn said in February that it had raised wages for workers by 16 to 25 per cent, and in March it reached an agreement with Apple to engage new workers to reduce overtime work. Foxconn has so far not responded to a request for comment.
The Inquirer (http://s.tt/1bntL)

In Major Shift, Apple Builds Its Own Team to Design Chips


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By YUKARI IW ATANI KANE and DON CLARK

Apple Inc. AAPL +0.80% is building a significant capability to design its own computer chips, a strategy shift that the company hopes will create exclusive features for its gadgets and shield Apple's work from rivals. The Silicon Valley trend-setter has been hiring people from many different segments of the semiconductor industry, including engineers to create multifunction chips that are used in cellphones to run software and carry out other chores. Digits

What Does Steve Jobs Want With All Those Chip Guys? Verizon's Smart-Phone Talks: What's Real?

Apple could use the internally developed chips to sharply reduce the power consumption of its hit iPhone and iPod touch devices, and possibly add graphics circuitry to help its hardware play realistic game software and high-definition videos, people familiar with its plans say. In one sign of the new focus, Apple recently hired Raja Koduri, who was formerly the chief technology officer of the graphics products group at chip maker Advanced Micro Devices Inc. AMD +0.36% Mr. Koduri started at Apple this week, following in the footsteps of Bob Drebin, who had held the same title at AMD and is also now working for Apple. Online job postings from Apple describe dozens of chip-related positions it is trying to fill, some with partial descriptions like "testing the functional correctness of Apple developed silicon." Besides a desire to beat rivals to market with new features, Apple's shift is also an effort to share fewer details about its technology plans with external chip suppliers, say people familiar with the moves. An Apple spokesman declined to comment. The new effort faces plenty of hurdles, and people familiar with Apple's plans don't expect internally designed chips to emerge until next year at the earliest. Still, Apple's aggressive hiring is another sign of how the company's recent success has allowed it to expand while other tech giants have trimmed their work forces in the recession. Apple's strategy also marks a break from a long-term trend among most big electronics companies to outsource the development of chips and other components to external suppliers.

STEVE JOBS

Last sp Steve Jobs explained the purchase of Silicon Valley start-up P.A. Semi as a way to acquire expertise and technology to help run increasingly sophisticated software on iPhones and iPods. "You can't just go out and buy the chips off the shelf to do that," said Mr. Jobs in an interview. Most cellphones are based on chip designs licensed by ARM Holdings PLC to others. For the iPhone, Samsung Electronics Co. supplies an ARM-based microprocessor with custom features developed by Apple, analysts say. People familiar with Apple's thinking say executives have expressed concern that some information shared with outside vendors could find its way into chips sold to Apple competitors. A Samsung spokeswoman declined comment. People familiar with the situation say Mr. Jobs told P.A. Semi engineers last April that he wanted to develop chips internally and didn't want knowledge about the technology to leave Apple. Mr. Jobs is on medical leave and was unavailable for comment. People familiar with Apple's plans expect former P.A. Semi engineers to help create ARMbased chips that could improve the performance and battery life of future iPhones. Apple's hiring spree in semiconductors started well before the acquisition and has continued through the past few months, according to postings on the networking site LinkedIn. The site contains more than 100 people listing current Apple job titles and past expertise in chips, including veterans of Intel Corp., Samsung and Qualcomm Inc. Apple's own job postings, some aggregated by the site Indeed.com, provide clues about possible features to come. Two recent postings involve handwriting recognition technology; several others seek expertise in chips for managing displays. Apple participated in a job fair earlier this month for soon-to-be-unemployed engineers at memory chip company Spansion Inc., which sought bankruptcy protection in March, people familiar with the situation said. s we ponder what will happen to Apple without Steve Jobs, I keep coming back to a conversation I had a few weeks ago with a veteran Silicon Valley CEO who knew Jobs. This was just after Jobs hadresigned as CEO of Apple. We got to talking about why Apple is so well-positioned in the post-PC era, and this executive zeroed in on something you dont hear too often. Steve Jobs told me he has 1,000 engineers working on chips, he said. Getting low power and smaller is the key to everything.

The number was startling when I first heard it. I knew that Apple started building its own chip design team in 2009, but figured it had to be a few hundred people at most, not 5 percent of Apples non-retail workforce. (Apple employs more than 50,000 people worldwide, 30,000 of them in its retail stores). Apple started designing its own chips because Intel and AMD were still stuck in the PC era. Apple needs chips that are powerful enough, but also very low power. Battery life is one of the most important features of a mobile device. Apples latest A5 processor, which first appeared in the iPad 2, will now power the iPhone 4S as well. Not only is the A5 twice as fast as the A4 in the current iPhone 4, but it slightly improves the battery life with 8 hours of talk time (versus 7 hours). Not only are Apples processors extremely power efficient, but Apple is also removing the hard drives from its products and replacing them with flash memory chips. Its not just iPhones and iPads, the MacBook Airs storage is also flash. All of Apples products are moving in this direction. When you combine these two fundamental changes at the silicon level, form factor no longer becomes an issue, explained the Silicon Valley CEO. You can put a computer into anything. Mobile phones and tablets, certainly. TVs, perhaps. But what else? It is only limited by the imagination of Apples engineers and what makes sense from a product point of view. When Jobs retired, TechCrunch writer MG Siegler cautioned against focusing too much on the next iPhone. Jobs left Apple knowing that a string of post-PC products will be introduced in the years ahead. MG wrote: Its the longer roadmap that should really be the grand finale in the Jobs fireworks show. Talking to sources in recent months, there has been one common refrain: that the things Apple is working on right now are the best things the company has ever done. These are things that will blow your mind, Ive been told. Jobs himself said when he resigned, I believe Apples brightest and most innovative days are ahead of it. Now we get to see what he meant by that. Jobs rebuilt Apple from the silicon up. It is the company itself which is his greatest product. And like all of his products, everything fits together: the chips, the hardware, the software, the industrial design, the developer platform, the tightly controlled manufacturing, the marketing, the retail stores. This machine is proving adept at making and selling mobile computersphones and tablets. But remember also that we are just at the beginning of the post-PC era. The iPhone launched 4 years ago, the iPad only a year and a half ago. It is becoming practical to put a computer into anything. Of course, just because you can, doesnt mean you should. And if anything, Apple is very disciplined about choosing what not to do (another Steve Jobs trait). But if you believe that post-PC devices will include more than just phones and tablets, it is not such a crazy idea that one day Apple will be churning them out as well.

You'll Get Your Apple News Here From Now On

Apple Cuts Samsung Out of New Chip Designs


9:28 AM EDT, Oct. 15th, 2012 Jeff Gamet News

Apple didn't rely on Samsung to help design its A6 processor, distancing itself even more from the electronics and chip maker. Instead, Samsung's involvement was only as a manufacturer, and soon the company may miss out on that business deal, too.

"Samsung's agreement with Apple is limited to manufacturing the A6 processors," a senior Samsung executive told The Korea Times. "Apple did all the design and we are just producing the chips on a foundry basis." The company played a role in helping design previous A-series chips for Apple -- the processors it uses in the iPhone, iPod touch and iPad. It seems now, however, that Apple no longer wants Samsung involved in its custom chip design process. The widening gap between the two companies doesn't come as a big surprise. Both have been fighting in court over mobile device patent infringement claims for some time with Apple landing a major victory recently in the United States. In the U.S. trial, a jury ruled that Samsung's Android-based mobile devices infringe on several Apple-owned patents, while Apple's iOS device lineup doesn't infringe on Samsung's patents. That case could lead to a U.S. sales ban on several Samsung devices and a bill for over US$1 billion in damages for the electronics maker. Apple recently gave Samsung yet another slap in the face when it hired away chip designer Jim Mergard from the company. Mr. Mergard is an expert in system on chip processor designs.

It looks like Apple is working to cut Samsung out of even more of its custom processor business by moving to Taiwan Semiconductor Manufacturing Company (TSMC) for chip manufacturing. Apple has apparently been approving the TSMC's 20nm manufacturing process, and is working to phase the company in as the sole A-series processor maker over the next couple years, and cutting Samsung out of the game. Losing that business could cost Samsung billions of dollars in lost revenue since Apple is one of the company's largest customers. With the clear message Apple is sending, it looks like it's time for Samsung to start hunting for new big-dollar clients.

any aspects of Apples product development process have long been shrouded in mystery. The process is discussed in a new book Inside Apple: How Americas Most Admiredand SecretiveCompany Really Works, by Adam Lashinsky, which is out now. The book talks about a variety of different aspects of Apple as a company; its philosophy, its hiring process and its legendary secrecy. But Apples product process has held a strong fascination for many over the years as it defies long-held conventions about how it should work for companies as large as it is. While some of these points have been revealed before, there is much here that is new to me. Lashinskys compact tome, which is fantastic, goes into detail on every aspect of the process and is well worth a read. This is the framework on which every Apple product development is hung: Every product at Apple starts with design. Designers are treated like royalty at Apple, where the entire product conforms to their vision. This the polar opposite of the way it works at other companies. Instead of the design being beholden to the manufacturing, finance or manufacturing departments, these all conform to the will of the design department headed by Jony Ive.

Designers at Apple have literally no contact with the finance departments at all and are considered to be unlimited in terms of the costs or manufacturing practicality of the materials used. The Industrial Design studio is the womb of all Apple products. It is where they are first generated and it is only accessible to a small number of Apple employees including Jonathan Ive. A start-up is formed. Once a new product has been decided on, a team is organized and segregated from the rest of the company by secrecy agreements and sometimes physical barriers. Sections of the building may be locked or cordoned off to make room for the teams working on a sensitive new project. This effectively creates a start-up inside the company that is only responsible to the executive team, freeing them from the reporting structure of a big company. Apple New Product Process (ANPP). Once the design of the product has begun, the ANPP is put into action. This is a document that sets out every step in the development process of a product in detail. Its not an original Apple concept but was first applied at the company during the development of the Macintosh. It maps out the stages of the creation, who is responsible for completion, who will work on each stage and when they will be completed. Products are reviewed every Monday. The ET (Executive Team) meets every Monday to go over every product that the company has in process. It is able to accomplish this because

Apple has so few products in production at any given time. Any that do not get a review are rolled over to the next review Monday. This means that no product is ever more than twoweeks away from a key decision being made. The EPM mafia. Once a product begins production, two responsible people are enlisted to bring it to fruition. The engineering program manager (EPM) and the global supply manager (GSM). The former has absolute control of the product process and is so powerful that it is referred to as the EPM mafia. Both of these positions are held by executives that spend most of their time in China overseeing the production process. The supply manager and program manager collaborate, but not without tension, always making decisions based on what is best for the product. Once a product is done, it is designed, built and tested again. At times there are leaks that display versions of a product like the iPhone that we never see released. Many times these leaks come from China, where a factory worker has been paid to hand off a prototype to a blogger or journalist. It turns out that once Apple is done building a product, it redesigns the product and sends it through the manufacturing process again, explaining the various versions we may see leaked. This is a 4-6 week process that ends with a gathering of responsible Apple employees at the factory. The EPM then takes the beta device back to Cupertino for examination and comments, hopping right back on a plane to China to oversee the next iteration of the product. This means that many versions of any given device have beencompleted, not just partially prototyped. This is an insanely expensive way of building a new product, but it is the standard at Apple.

The packaging room. A room in the Marketing building is completely dedicated to device packaging. The security here is matched only by the sections of the building dedicated to new products and to design. At one point before a new iPod was launched there was an employee who spent hours every day for months simply opening the hundreds of box prototypes within in order to experience and refine the unboxing process. The launch is controlled by the Rules of the Road. An action plan for the product launch is generated, called the Rules of the Road. Its a top secret document that lists every significant milestone of a products development up until launch. Each milestone is annotated with a DRI (directly responsible individual) that is in charge of making that item happen. Losing or revealing this document to the wrong people results in an immediate firing, as noted in the document itself. As you can see from the breakdown, Apple often makes decisions that make the process more expensive and less efficient in order to produce a seriously better product. These are things that shouldnt pay nearly the dividends they do, but consistently fail to disappoint. Many companies are too complex, or too hidebound in the traditional way of doing things, to take on many, if any, aspects of Apples process. Still, there is an alluring simplicity to Apples accountability schemes and its devotion to good products first. And there is, of course, the massive financial success of the company over the past 10 years.

This product development process is just a fraction of the information revealed in Lashinskys book, which is available today in a variety of formats. If youre a student of Apple or of electronics manufacturing at large then it should be added to your reading list post-haste.

Apple's ITC complaint against Samsung: 5 technical and 2 design patents against 6 smartphones and 2 tablets
Bloomberg was first to report today on Apple's ITC complaint against Samsung. It was filed yesterday, and it wasn't clear to which products it related as the ITC only stated "Electronic Digital Media Devices" as the accused category of products. The complaint just entered the public record and I can now describe and analyze its content -- and before I go into detail, let me show you my updated battlemap:

AppleVsSamsung_11.07.05
Assertions: five utility patents and two design patents against six smartphones and two tablets The gist of the new ITC complaint is that Apple asserts five utility patents (technical patents) and two design patents against a host of Android-based products: six Samsung smartphones o o o o o o Galaxy S 4G Fascinate Transform Captivate Intercept Infuse 4G

and two tablets o o the original Galaxy Tab the new Galaxy Tab 10.1

Patents-in-suit

One of the five utility (= technical) patents Apple asserts now was asserted in Apple's original lawsuit (in Northern California) but withdrawn from that one as Apple amended it. It resurfaced now. The other four technical patents and the two design patents were not previously asserted against Samsung. These are the asserted patents: Utility (technical) patents o U.S. Patent No. 7,479,949 on a "touch screen device, method, and graphical user interface for determining commands by applying heuristics"; Apple uses this patent all the time against Android, and Steve Jobs is the first name on a long list of inventors who contributed to it o U.S. Patent No. RE41,922 on a "method and apparatus for providing translucent images on a computer display" o U.S. Patent No. 7,863,533 on a "cantilevered push button having multiple contacts and fulcrums" (that's the one they temporarily asserted against Samsung in California) o o U.S. Patent No, 7,789,697 on "plug detection mechanisms" U.S. Patent N. 7,912,501 on an "audio I/O headset plug and plug detection circuitry" The Galaxy Tab and Galaxy Tab 10.1 allegedly infringe all five of those utility patents. The Fascinate smartphone is accused of infringing three of them (the first two and the fifth one); the Captivate smartphone, the first and the third; and the Infuse 4G smartphone, the first two. Design patents o U.S. Design Patent D558,757 on a certain "ornamental design for an electronic device" found on the iPhone 3GS; asserted against the Fascinate and Transform smartphones o U.S. Design Patent No. D618,678 on a certain "ornamental design of an electronic device" found on the iPhone 4; asserted against the Fascinate, Galaxy S 4G, Transform and Infuse 4G smartphones Apple's ITC complaint is a logical move on a real-time chessboard

After Samsung filed its ITC complaint against Apple about a week ago, I already predicted that Apple would also do so. In such a dispute time is of the essence: you don't want your adversary to obtain (or to be reasonably likely to obtain) an injunction -- or aninjunction-like ITC import ban -against your products before you have the same leverage. Apple's motion for a preliminary injunction will have to be adjudicated well ahead of an ITC decision, which usually takes 16-18 months. But Apple can't rely on that particular strike alone. Should the motion for a preliminary injunction be denied, the ITC is usually a faster track to a decision than the federal courts. Apple also filed a motion to speed up the Calfornia lawsuit in general -- not just the part concerning the preliminary injunction motion. Samsung, quite expectedly, opposes that kind of acceleration. By the way, don't be surprised if later today or tomorrow there's news of a companion federal lawsuit filed by Apple, asserting the same patents as in this ITC complaint. Most of the time, companies lodging a complaint with the ITC also file a federal lawsuit. Those federal lawsuits are typically stayed pending the ITC investigation. One of the reasons for filing federal lawsuits as well is that the ITC can order import bans but not award damages. Recent developments in this dispute This ITC complaint follows a flurry of filings recently made by the two litigants against each other in various jurisdictions. The most recent development is that Apple's proposal for an August 5 hearing on its preliminary injunction motion may have been a bit too ambitious. The judge believes that a little more time may be needed to conduct some related discovery. Previously, there was quite some confusion in the media about Samsung having purportedly "dropped" its countersuit in California. In a formal sense, Samsung did drop it, but only toconvert it immediately into counterclaims, which has certain procedural advantages for the court and for Samsung. In that process, Samsung even increased the number of U.S. patents asserted against Apple by two (now 12 patents in California and 5 at the ITC and -- the same 5 -- in Delaware). So what Samsung did in California was just the opposite of a retreat.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents.

Apple's Secret Plan For Its Cash Stash


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Apple CEO Tim Cook (Getty Images)

Apple has $100 billion of cash and a lot of ways to spend it. Add more retail stores? Check. Set up more server farms to support its iCloud service? Check. Build a second campus in Cupertino, Calif. to house its burgeoning staff? Check. Acquire companies and expand R&D? Check. Pay dividends and do stock repurchases? Check, check. How about buying up its own supply chain? A lot of high-tech manufacturers on The Global 2000 dream about controlling what they pay for components and gaining the assurance that crucial parts will flow as needed. Apple is one of very few firms with the financial wherewithal to make that come true, specifically by buying production equipment to outfit new and existing factories in Asia that other people will run. Apple is already deploying its cash toward this very goal, say people who follow the company closely. Its a strategy that will likely continue the disruption in the consumer electronics field that Apple has led to date. The iPhone maker has $64 billion or so of its cash sitting overseas, taxed at an attractively low 5% rate but also earning little to no interest. Any

cash Apple chooses to bring back to the States would get hit at the 35% U.S. tax rate, not a pleasant prospect. Spending that money on expanding offshore production is far more compelling. Apple keeps the depreciation expense while keeping production costs down. It also means the company will be ready to continue pumping up the volume to feed the seemingly insatiable appetite for iPhones and iPads in the near term and rumored new category-busting products like an interactive TV in the long term.

Apple's iPad Reaches Out, Will Go on Sale in 21 Countries


Connie GuglielmoForbes Staff

Apple CEO Cook Visits China


Connie GuglielmoForbes Staff

According to Katy Huberty, an analyst at Morgan Stanley, thats exactly what CEO Tim Cook, an operations expert who has been the master of Apples supply chain since Steve Jobs hired him in 1998, is doing. And she calls the move frankly ingenious. Says Huberty: Apple is cornering the market in [its] supply chain giving them an edge beyond volume and scale. If Apple owns its equipment, it means its suppliers cant build an HP PC or HTC smartphone on it. It took Huberty a little time to figure out exactly what Apple was up to. When the company disclosed in October it planned to spend $7.1 billion on capital expenditures in 2012, up from $4.3 billion last year, lots of folks were scratching their heads over how Apple would use the money, which didnt include $900 million set aside for opening new stores. Even after you factor in costs for data centers to support its cloud service, the new 175-acre campus going up on land formerly owned by HewlettPackard and the special tooling needed to accommodate Apples unique product designs, theres still a lot of unaccounted-for cap ex. Discussions with suppliers in Asia gave Huberty the answer regarding its spend on what it called manufacturing process equipment. Put yourself in the shoes of suppliers for Nokia, Motorola, HP and Dell, with businesses that are very volatile. They have to build out capacity for these companies, and when the products dont sell well, their margins go down, she says. If a customer comes to you and says, I will take the equipment risk, and I will own it so you dont have to depreciate it. Itake the volatility out of your business, theres no way most of them are going to say no.

When asked about the supply chain plan, Apple referred back to its public statements about its cap-ex spending. In a Mar. 19 conference call about how the company was going to use some of its $100 billion in cash, Cook was sure to include capital expenditures in our supply chain among the list of his other spending items. The plan would likely look like this: Apple fronts the money to buy the production equipment for suppliers that set up the factories, hire the labor and run the day-to-day operations. Apple still owns some of the equipment and takes the depreciation, the extent of which is not known because Apple isnt saying. Huberty believes that most of the $7.1 billion is going toward equipment purchases for the suppliers. Apples investment in its own supply chain, coupled with growing scale and the prepayments it routinely makes to lock up supply of crucial components such as memory and screens, will translate into a 15% to 20% cost decline a year, Huberty estimates. That helps establish and maintain higher margins for the iPhone (50% or more) and iPad (about 40%). It also gives Cook the flexibility to consider moving into low-margin, highvolume markets such as TVs and to cut pricing on older products to lure cost-conscious buyers, as Apple did when it chopped the price of the iPad 2 by $100 when it released the new iPad. Those 40%-plus gross margins on phones and tablets are part of what puts Huberty among the cadre of analysts and investors who think Apples shares will top the magic mark of $1,000 in the next two to three years (up from about $609 today). That would make the Silicon Valley garage startup the first company with a trillion-dollar market valuation.
Apples Inc.s semiconductor purchases will grow from $24 billion in 2011 to nearly $28 billion in 2012 as the company again will be the leader in chip buying, according to researcher IHS. Apples chip purchases will surpass Samsung, which will buy $19 billion of semiconductors in 2012, IHS reported. Apple will maintain its lead in semiconductor purchases because of continuing strong demand for its products. With its growth, Apple is gaining more clout in the electronics supply chain and is able to increasingly dictate semiconductor pricing, control product roadmaps and obtain guaranteed supply and delivery, said Myson Robles-Bruce, senior analyst for semiconductor spending and design activity at HIS. This gives Apple competitive advantages, allowing the company to offer more advanced products at lower prices, faster and more reliably than the competition, Robles-Bruce noted. Besides buying the most semiconductors, Apple is expected to achieve the strongest growth rate in chip spending among the top semiconductor buying OEMs.

Apple is set to increase its chip buying at a rate nearly three times faster than the next-fastest-rising purchaser, Canon, the eighth largest semiconductor buying company. Ranking among the top 10 semiconductor purchases in three out of the four major global regions, Apple is positioned at No.1 among all chip buyers in the Asia-Pacific region, No. 2 in the Americas, and No. 6 in EMEA. Apple is expected to be second to Cisco Systems in semiconductor purchases in the Americas in 2012. Cisco will buy more than $1 billion of semiconductors in the U.S. than Apple because Cisco has more design centers in the U.S. Cisco also has higher spending on consumer electronics-related chips for set-top boxes, and it makes large semiconductor purchases in support of its business in wired communications equipment in the Americas. Apple is expected to lead in semiconductor buying in 2013 as well with the projected chip buying growth rate of 12.3 percent, according to IHS. Apple will continue to outgrow the other major OEMs in chip purchasing because of its clear vision of the future, said Robles-Bruce. The vision includes a strategy to update currently popular products, but also achieve success in other areas of interest such as the television segment.

Apples Lead in Global Chip Purchasing Expands, Consolidating its Influence over Electronics Supply Chain
July 25, 2012 MYSON ROBLES-BRUCE Apple Inc. is not only the worlds leading original equipment manufacturer (OEM) in terms of semiconductor purchasing, the company also is increasing its buying at a faster rate than other top firms, solidifying its hegemony over the chip market. Apple this year is expected to buy nearly $28 billion worth of semiconductors, up 15 percent from $24 billion in 2011, according to an IHS iSuppli OEM Semiconductor Spend Analysis report from information and analytics provider IHS (NYSE: IHS). This means that Apple will dramatically outperform the No. 2 purchaser, Samsung Electronics Co. Ltd., allowing it to remain the worlds top OEM semiconductor buyera position it has held since 2010. The table below presents the IHS forecast of the Top-10 OEM semiconductor buyers in 2012, ranked by purchasing revenue.

Apple is maintaining its lead in semiconductor purchasing because of continuing strong demand for its products, combined with the companys capability to maintain beneficial relationships with more than 150 suppliers that provide components or offer manufacturing and assembly services.

But aside from maintaining its global dominance in chip purchasing, Apple is also outgrowing the other OEMs and making gains in the various regions of the world. For Apple, this translates into competitive advantages when it comes to manufacturing electronic products. Its well known that Apple has already conquered the smartphone and tablet segmentsbut behind the scenes the company is engaging in another kind of conquest: the dominance of the electronics supply chain, said Myson Robles-Bruce, senior analyst for semiconductor spending and design activity at IHS. Such a dominant position provides critical benefits, allowing one to dictate semiconductor pricing, control product roadmaps and obtain guaranteed supply and delivery. For Apple, these benefits translate into competitive advantages, letting it offer more advanced products at lower prices, faster and more reliably than the competition. Advancing on Nearly all Fronts A detailed look at Apples purchasing activities shows it is making gains against nearly all of its competitors and in almost all regions. Beyond its No.1 position worldwide, Apple also is expected to achieve the strongest growth in chip spending among the globes Top 10 OEM semiconductor buyers. In fact, Apple is set to increase its chip buying at a rate nearly three times faster than the next-fastest-rising purchaser, No. 8 ranked Canon, which will see a 4.6 percent increase this year. Of the four major electronics production regions, Apple is expected to achieve the fastest growth in semiconductor purchasing among the Top 10 OEMs in two areas: the Americas and EMEA (Middle East and Africa). Apple is set to attain the second fastest-growth in a third geography, the key Asia-Pacific region, which now is the worlds dominant electronics producer. Only in Japan was Apple not among the fastest-growing chip purchasers. Gunning for No. 1 in the Americas Apple ranks among the Top 10 semiconductor purchases in three out of the four major global regions. The company is positioned at No.1 among all chip buyers in the Asia-Pacific region, No. 2 in the Americas, and No. 6 in EMEA. Apple is expected to come in second behind Cisco in the Americas in 2012. However, Apple is closing the gap, with Cisco expected to post a 5 percent decrease in semiconductor buying in 2012. Still, Cisco holds a more than $1 billion lead over Apple is U.S. chip purchasing. Cisco leads Apple in the U.S. because it maintains a larger number of design centers there. The company also has higher spending on consumer electronics-related chips for set-top boxes, and it makes large semiconductor purchases in support of its business in wired communications equipment in the region. On the Rise in 2013 Apple is set to expand its lead in global chip purchasing in 2013, with growth of 12.3 percent once again leading the Top 10 OEM semiconductor purchasers. Apple will continue to outgrow the other major OEMs in chip purchasing because of its clear vision of the future, which extends a few years out. This vision includes a strategy to not only update currently popular products but also achieve success in other areas of interest like the television segment, Robles-Bruce said. Read More >

Worldwide OEM Semi Spend Higher for Consumer Electronics and Automotive

Foxconn Doubling iPhone Output Next Year

Apple manufacturing partner Foxconn is planning to expand its operations next year by increasing production of iPhones to meet rising consumer demand. The $1.1 billion expansion, expected to bring $20 billion in sales revenue in 2012, would position the factory as the largest smartphone production facility in the world. Foxconn's Science Park in Zhengzhou that opened earlier this year, is where the company plans to double the size of its workforce by recruiting an additional 100,000 employees which is the same number hired in 2011. Apples primary iPhone manufacturer will be increasing its current production lines to 95 according to a report from China Daily. Foxconn's Zhengzhou plant currently churns out 200,000 iPhones per day with 130,000 workers, according to reports. The workforce expansion will increase daily production of iPhones to 400,000 and should reduce wait times for the device which sold out rapidly when it launched in 22 countries earlier this year. It appears that the increased production efforts are being initiated ahead of the highly anticipated launch of iPhone 5 expected sometime next year.

iPhone: Who's the real manufacturer? (It isn't Apple)


By Texyt Staff - Fri, 06/29/2007 - 11:45.

Asia

Opinion

Technology

Who makes the iPhone? If you answered 'Apple', you're wrong. The iPhone is a global effort. Tens of thousands of people at more than 30 companies on 3 continents work together to make Apple's first phone possible. Apple, of course, designs the product, and also created the single most important 'component' the software that gives the iPhone its unique personality. But, while Apple gets the credit, behind the scenes there are a host of other players, each of which has to build and deliver complex parts on schedule to make the iPhone possible. Some of them are well known names, like USbased Intel, which supplies the NOR flash chips which hold the iPhone's updatable system software; and Korea's Samsung, which makes the video processor IC. Two famous names from consumer electronics, Japan's Sharp and Sanyo Epson, are among the suppliers of the phone's bright 3.5-inch display.

Unknown suppliers
Then there are the unknowns, each of which plays a small but vital role. Ever heard of Balda AG? Chinese factories owned by this German firm make the touch sensitive modules which are fixed onto the iPhone's LCD to make its innovative multi-touch control possible. It's also Balda's technology which allowed Apple to switch to a tough scratch-resistant glass screen, to avoid the complaints over scratching that tainted the iPod Nano launch. Another low profile firm, the UK's Cambridge Silicon Radio (CSR), is the creator of the iPhone's Bluetooth module, in a deal that reportedly earns the integrated circuit design house $1.20 for each iPhone made. You might have heard of the companies behind a few of the other iPhone chips if you've ever wrestled with network driver installation on a PC. Marvell designs the WiFi chip, for example. Broadcom, best known for its networking chips, is the company behind the specialized interface chip that interprets the movement of your fingers on the multitouch screen. While these chips are designed in Europe or the US, most of them aren't made there. Instead they are rolling off production lines in Asia, from companies like Taiwan Semiconductor

Manufacturing Co (TSMC), undoubtedly the world's biggest unknown chip maker, or its slightly smaller rival, United Microelectronic Corp (UMC) both companies are based in Taiwan. The distinctive aluminum and stainless steel iPhone case is also made by a Taiwanese firm, Catcher Technology, according to analysts in Taiwan.

Final assembly mystery


No matter where the iPhone's myriad components are made, they all end up in one place: the factories of a lead contractor whose identity is now something of a mystery. Apple's iPod manufacturing partner, Taiwan's Foxconn, was long rumored to be the company that assembled the hundreds of components into a sleek iPhone. However, Foxconn's CEO recently surprised investors by telling them that these reports were incorrect, according to Reuters. Another likely Taiwanese candidate, Quanta, is rumored to be working on the iPhone, but only on the next generation, so-called 'iPhone 2.0'. Analysts in Foxconn's home base of Taipei however, still confidently list Foxconn International Holdings as the iPhone's assembler, despite the company CEO's apparent denial. Whoever the assembler is, it is there that the chips are planted onto printed circuit boards supplied by Taiwan's Unimicron Technology Corp. Then all the components are fitted into the metal and plastic case to make a completed iPhone, ready for shipment to the US.

A second 3G iPhone?
During recent months, sources at a few of the component manufacturers named in this article have told regional media that Apple appears to be working on two different iPhone designs. The key feature attributed to 'iPhone 2.0' is 3G, as well as the GSM standard supported by the original iPhone. At least one of the smaller components suppliers has reportedly already delivered parts for this forthcoming product.

iPhone Primary Contractors - a partial list Software and design Assembly TFT-LCD Screen Video processor chip Touch screen overlay Bluetooth chip Apple USA

Foxconn?, Quanta, Unknown Taiwan Sanyo Epson, Sharp, TMD Samsung Balda Cambridge Silicon Radio Japan Korea Germany UK

Chip manufacture Baseband IC WIFI Chip

TSMC, UMC Infineon Technology Marvell

Taiwan Germany USA USA USA USA US, TW Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan

Touch screen control chip Broadcom CMOS chip NOR Flash ICs Display Driver chip Case, Mechanical parts Camera lens Camera module Battery Charger Timing Crystal Passive components Connector and cables Micron Intel, SST National Semi, Novatek Catcher, Foxconn Tech Largan Precision Altus-Tech, Primax, Lite On Delta Electronics TXC Cyntec Cheng Uei, Entery

Note: This article is based on information supplied by KGI Securities, CLSA Asia-Pacific, published media reports, and other sources in Asia. Update June 30: Some of the first iPhones sold have been dismantled, and more information about components is emerging. For example, iFixitidentifies Samsung as the manufacturer of the main NAND flash chips, and SkyWorks as the designer of the mobile radio amplifier. Think Secret has also carried out an iPhone teardown - in the linked photo the large chip at the bottom of the shot is the Samsung flash chip.

Apples specialised brand of


By agammer (not verified) - Fri, 06/29/2007 - 20:06.

Apples specialised brand of marketing BS FTW That's what makes the real money

reply

You realize that this


By Anonymous (not verified) - Thu, 05/22/2008 - 21:45.

You realize that this article is probably not intended to make Apple look like it's lying by saying it's just Apple... because then it would be something like the Apple-Sharp-Samsung ect... iPhone. And of coarse I hope you don't get the idea that Apple is the only manufacturer who builds their products out of other companies chips, Because dell does it, IBM does it, heck, my Dodge has something near the motor that says Ford on it????

reply

http://www. shmula.com/ the-appleiphone-

supplychain/304/
http://www.newgeography.com/content/002751-what-apple%E2%80%99s-supply-chain-saysabout-us-manufacturing-and-middle-skill-training http://www.macrumors.com/2012/09/19/iphone-5-component-costs-estimated-to-begin-at-199/

Secrets of Apple's customer success


The company once again tops an annual survey of PC makers' customer satisfaction. What is it that makes Apple customers so satisfied?
by Erica Ogg September 20, 2010 9:01 PM PDT

Hardware manufacturers liberally take cues from Apple products, so why not its approach to customers? For the seventh straight year, Apple has topped its competitors in the PC industry in the University of Michigan's American Customer Satisfaction Index (ACSI), achieving a score of 86 out of 100. Its Apple's highest ranking since the annual survey began in 1995. But the real story is how much further ahead of its peers Apple is in this area: most of the rest of the field (Acer, Dell, HP, and others) is tied with a score of 77, while HP's Compaq brand is ranked 74. All of the PC makers improved their scores this year, but it didn't help them collectively avoid sinking further behind Apple. The Mac maker's nine-point lead is now the largest lead any company has over its competition in any of the 45 categories that the ACSI study surveys--including home appliances, gas stations, autos, e-commerce, airlines, and more.

The Apple Store on Fifth Avenue in New York City is one of the company's flagship stores in terms of both customer traffic and architecture and design. (Credit: Marguerite Reardon/CNET )

Apple's lead, while not insurmountable, can be attributed to a few things, including a lineup of products that is broad yet connected, a meticulously controlled retail experience, and a very particular brand of leadership at the top. It's not just notoriously good customer service, said David VanAmburg, managing editor of the ACSI, though that helps. "I think it's a commitment to innovating and integrating products. Apple is still somewhat uniquely positioned with Macs, the iPad, iPhone, and the iPod," he said. "There's a plethora of IT products that have been integrated together easily, and Apple has been able to capture 'IT' writ large, rather than just personal computers." That is to say Apple, in comparison to its competitors making PCs, has an ecosystem of hardware connected by its own software, iOS, iTunes, and Mac OS X. Apple has total control over its products and has been able to branch out to other types of devices beyond desktops and laptops. PC makers are somewhat beholden to the product cycles of Microsoft and are seen as just that, PC makers--not consumer device makers. So why aren't they copying Apple? HP actually is beginning to take steps in this direction. By buying Palm, it's looking to integrate mobile devices like phones and tablets into its larger ecosystem of laptops and printers. But other large PC makers like Dell and Acer are not there yet. "It's taken a long time for other manufacturers to see the benefits that Apple is getting from this," VanAmburg said. "We may be seeing it a bit with HP going out and grabbing Palm, getting into the handheld business and integrating (WebOS) within its systems." "There is some movement in the industry now beyond Apple to grow past this thinking of the PC per se, but I think the industry has been slower to do it," he added. "But there's a reluctance to go down that route." Face time with people and products Apple Stores are the best example of what makes it different from its peers and are illustrative of the company's approach. The retail stores are one of the most important ways people interact with Apple. Not just for those who are already customers but potential customers--sometimes more than 50 million customers tromp through Apple's doors every three months, and half of them who make purchases are first-timers, according to Apple.

There are 300 Apple stores worldwide right now, mostly in the U.S., but growing in major world capitals, like London, Paris, and Shanghai. Everything about the store is intended to represent what it is like to own and use an Apple product: Apple controls the whole experience, from the limited range of products on the shelves, to the training of the young, intentionally geeky/hip employees, to the manner in which some stores are designed with architectural flourishes normally reserved for museums, to the tech support received at the Genius Bar, to the educational classes offered in stores for using Apple products. PC companies have dabbled in retail with varying results. Microsoft's current experiment in retail--which borrows from Apple's retail look and feel--is still small: four stores right now, with a few more planned. Dell's foray was brief, and Gateway did well for a number of years until calling it quits before eventually being sold to Acer. Retail stores are expensive to maintain, but it can define a company's brand and dictate how customers interact with a company. Apple takes that task on itself, in addition to selling its products online and through some third-party retailers. PC makers either rely on the direct approach on the Web or trust a salesperson to properly present their product at Best Buy, Fry's, MicroCenter and others, or just leave it up to the consumer wandering the aisles at Wal-Mart or Costco. Putting the customer first A lot of that "reluctance" to embrace Apple's well-regarded approach to customers that VanAmburg spoke of may come down to the roots of these companies. Some are much more technically oriented than customer oriented, which has a sizable effect on how they prioritize, said Ira Kalb, clinical marketing professor at the USC Marshall School of Business.

Apple was able to save face with customers by giving away free cases to iPhone 4 owners after complaints arose regarding its antenna. (Credit: Josh Lowensohn/CNET )

"The reason that a lot of these companies don't copy Apple's customer service is they don't realize how important it is, that's the big one," Kalb said. "They look at it as a cost rather than a return on investment item." Though it sounds obvious that the customer being taken care of should be a primary concern for any company dealing in consumer goods, it's not always followed, he said. "A lot of these computer companies in particular were started and run by technical people, who are notorious for caring about technology over customers." Things like customer service, marketing, and making technology easier to understand for nontechnical people can make or break a customer's perception of a company. Apple's customer service, which is perennially ranked highly, is illustrative of the differences.

The other major difference between Apple and the rest of the field is that no other company is as subject to a singular vision. At Apple, the only person whose opinion really matters in the end is Steve Jobs, and that goes for product decisions as well as how the company is run. That doesn't work for everyone. At most large companies, there are competing agendas and fiefdoms that compete for resources and weigh in with differing visions on products. Jobs' leadership style cuts that out. It's not that Apple does everything right of course. The most recent example is "antennagate," which developed out of customers' distaste for the way Apple handled problems related to the antenna design of the iPhone 4. Apple's initially condescending response to the issue was eventually addressed by the offer of a free case for iPhone 4 customers, though not without obvious annoyance on Apple's part. Still, the lesson was a useful one for a company that already handles its customer interactions mostly well, said Kalb. And it could be why the company continues to improve in its customer satisfaction index despite such hiccups. "I think (Jobs) was shocked by the antennagate reaction," he said. "But I think that woke them up further."

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