In its supplier keynote, Apple said that 156 companies account for 97% of the money spent on materials, manufacturing, and assembly of the coveted products. When a client is a strong country like Apple, winning a contract among these 156 is a significant event. On Wall Street terms, it moves stocks. The cost of parts and manufacturing for Apple's iPhone 4 is estimated at $196 by industry research company iSupply. This is $453 less than what Apple charges for an unlocked phone. Marketing and research can increase costs, but either way you look at it, Apple makes a substantial profit on each phone sold, says analyst Tom Dinges.
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How Apple finds parts and production for its products is almost entirely outside standard agreements in the tech industry. Electronics companies say Asian factories are cheaper and more flexible than anywhere else in the world.
Apple has over 60,000 employees, most of whom work in retail stores. For building entire machines and assembling products, Apple has a long list of partners. This is partly to avoid dependence on any one manufacturer and to get good deals through competition for each part.
Where does all the profit come from? "They'd rather go a mile deep with suppliers than split the business five ways," Dinges says. "You take care of your biggest customer first."
In the first 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 revenues of $46.3 billion and profits of $13.1 billion, which doubled Apple's performance in the same period the previous year.
For instance, Apple stores sell the iPhone for $199 if the customer signs a two-year cell contract. But in technology, companies and Verizon Wireless pay Apple more for the phones, selling them at a lower price, a process called subsidy. To get an "unlocked" or no-contract phone, one hopes to pay at least $649 to Apple.
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 where Foxconn has seen a series of worker suicides in 2010 and conditions that workers-rights groups say are inhumane.
Apple told CNN in a statement that its expectations for responsible supplier operation have increased year over year. Apple says it conducted 229 supplier audits last year and published its findings online.
On the back of the iPod, iPhone, and iPad, and at the bottom of the laptops, the inscription reads: "Designed in California. Assembled in China."
The parts themselves come from over 150 companies around the world. Most of these antennas, glass, metal, sensors, and silicon are manufactured overseas.
Apple's workers at Foxconn in China and other entities in Asia must stay busy to keep up with the world's seemingly insatiable demand for Apple products.
However, Apple tries to minimize the number of companies it contracts with, Dinges says. This way, Apple has more influence since it is the biggest-spending client, he says.
"We care about every worker in our global supply chain," Apple said in a statement. "We insist our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally friendly manufacturing processes for all Apple products. Suppliers must meet these requirements if they want to continue doing business with Apple."
But as the most valuable tech company in the world, Apple is seen by many as a model for business practices. And its reliance on cheap labor, especially in overseas factories in China run by manufacturers like Foxconn, has come under increasingly intense scrutiny recently due to media reports by CNN, the New York Times, and other outlets.
Apple promotes the creditworthiness of its suppliers, but Apple is a shrewd negotiator, from how it develops leases or builds its retail store sales. It is said this power pushes Apple's partners to cut corners on workers to squeeze out profits.