How Apple Cuts Costs, Builds Gizmos

by bchenglk44 on 2012-02-07 15:15:20

Apple has more than 60,000 employees, most of whom work in retail stores. For the assembly and production of its products, Apple has a long list of partners. This is partly to prevent dependence on any single manufacturer and to get good deals from each sector's competitive companies. The cost of parts and manufacturing for Apple's iPhone 4 is estimated at $196 according to industry research firms. This is $453 less than what an Apple phone costs without a contract. Marketing and research can increase costs, but one way or another, Apple makes a substantial profit on every phone sale, says analyst Tom Dinges. "We care about every worker in our global supply chain," Apple said in a statement. "We require our suppliers to provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes for all Apple products. Suppliers must meet these requirements if they want to continue doing business with Apple."

The parts themselves come from over 150 companies around the world. Most of these antennas, glass, metal, sensors, and silicon are made overseas.

On the back of iPods, iPhones, and iPads, and at the bottom of laptops, there is an inscription that reads: "Designed in California. Assembled in China."

Apple's workers in China, including those at Foxconn and other Asian manufacturers, must stay busy to keep up with the world's seemingly insatiable demand for Apple products.

In its report to suppliers, Apple claims that 156 companies account for 97% of the money spent on materials, manufacturing, and assembly of its highly desired products. When a client is a strong company like Apple, winning one of these contracts is a significant event. In Wall Street terms, it moves stocks.

Looking at Apple supplier factories in China

But as the most valuable tech company in the world, Apple is seen by many as a model of a business paradigm. Its reliance on cheap labor, especially in overseas factories in China operated by manufacturers like Foxconn, has come under increasingly rigorous scrutiny recently by CNN and New York Times reports and other outlets.

"They would rather go a mile deep with a few suppliers instead of spreading business between five," Dinges said. "You take care of your biggest customer first."

For instance, Apple stores sell the product for $199 if the client signs a two-year cell contract. But in technology, Apple and Verizon Wireless pay more for the phones and sell them at a lower price, a process called subsidy. To get a so-called "unlocked" or no-contract phone, one hopes to pay at least $649 for an Apple device.

Apple promotes supplier credit, but Apple is a shrewd negotiator, from how it develops a lease or builds its sales in retail stores. It is said this power pushes Apple's partners to cut corners to squeeze out profits.

Apple told CNN in a statement that its expectations for supplier responsibility have increased year after year. Apple said it conducted 229 audits of suppliers last year and reported its findings publicly online.

Where does all the profit come from?

In the last three months of 2011, Apple sold 37 million iPhones, 15.4 million iPods and iPads, and 5.2 million Mac computers, according to the company's financial report. This gave Apple revenue of $46.3 billion and a profit of $13.1 billion, which doubled Apple's figures from the same period the previous year.

However, Apple tries to minimize some companies it contracts with, Dinges said. This way, Apple has more influence because it is the biggest-spending customer, he said.

Foxconn, owned by Hon Hai Precision Industry, counts Apple among its commercial clients, which also include Amazon.com, HP, Microsoft, and other tech giants. Apple has reported violations at its facilities, and Foxconn faced a series of worker suicides in 2010, where workers-rights groups say conditions were inhumane.

How Apple finds parts and produces its products is almost entirely standard protocol outside the tech industry. Electronics companies say Asian manufacturing plants are cheaper and more flexible than anywhere else in the world.