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Reports That Availability for Apple’s New Larger iPad Pushed Back

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In July of 2014 two former competitive rivals, Apple and IBM announced a strategic alliance targeted to provide more mobile-based apps and other applications for business enterprises. At the time, Apple CEO Tim Cook indicated: “This is really a landmark deal”. Over 100,000 IBM consultants would be positioned to promote new mobility based business applications, and the alliance was billed as a potential win-win for both firms.

The apps themselves were to draw on IBM’s computing services including security, device management and big-data analytics. The alliance called for Apple and IBM engineers to jointly develop more than 100 new business applications tailored for specific industry needs.

In December, both companies jointly announced an initial set of 10 IBM MobileFirst apps for use with Apple iPhone and iPad products, targeted for specialized needs in air travel, banking, insurance, field service, law enforcement and retail settings.

The July alliance announcement further called for Apple to release a larger, business enterprise version of its iPad tablet, one with a larger screen size with potentially PC-like features.  The timetable for the release of the larger iPad at the time was hinted to be in Q1 of this year.

The Wall Street Journal, citing supplier and other familiar sources, reported that the larger 12.9-inch iPad, originally slated for production ramp-up this quarter, will now have volume production pushed back to the second-half of this year. According to this report, design teams are still considering additional product design changes that could possibly include higher capacity USB 3.0 ports for data synchronization between the tablet and other computing devices, along with keyboard and mouse ports. Apple, of course, declined to respond to the WSJ regarding its report.

From our Supply Chain Matters lens, the types of design changes described do not seem to correlate with such a shift in the overall time-to-volume milestone. We suspect that there are other design, line-of-business or functionality issues being worked.  In past NPI cycles, design and volume yield of a new, larger LCD display have tended to be challenges for suppliers. With the presence of an alliance partner with its own vested interests, we all know that program politics can come to the fore.

Apple’s overall iPad sales and market share continue to decline. Sales were down 18 percent in the December-ending quarter. Thus, it is rather important that Apple provides availability of the larger version as quickly as possible, especially in the light of the pent-up consumer demand that was demonstrated by the availability of the larger iPhone 6. But, there is consideration for the counter strategy, namely allowing the iPhone6 to continue to gain consumer market interest without the existence of another alternative option.

We wonder aloud if this is a market opportunity potentially lost.  New product introduction and supply chain time-to-volume are super critical in the highly competitive smartphone and electronic tablet segment.  When such delays are coupled with new mobile-based business applications, the stakes grow higher for both companies. Apple has traditionally catered to its loyal consumer market, where major product releases are time for the latter holiday buying quarter.  Business applications reflect a different buying cycle, more attuned to solving painful business and personal productivity challenges.  Catering to both segments implies different priorities and milestones in product lifecycle management, especially when two alliance partners are inserted into the NPI process.

Bob Ferrari


Latest Reports of 2014 Smartphone Sales: Focus Beyond the Eye Catching Headlines

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This week, IT media publications are running the headline that in the last quarter of 2014, Apple edged out Samsung in smartphone sales.  While the Q4 smartphone numbers would indicate such an obvious eye-grapping headline, both of these smartphone producers, along with their respective supply chain ecosystems, should be more concerned with the implications of the total unit sales volumes in 2014.

Media is actually reporting the latest shipment numbers provided by research firm Gartner.  While Apple sold 74.8 million smartphones in Q4, vs. the 73 million sold by Samsung, a review of the full 2014 data provided in a Giga posting provides more concerning trending.  According to Gartner’s analysis, 1.24 billion smartphones were sold to consumers in 2014.  That represents a lot of production, supply chain, LCD and semiconductor component capability.

Both Samsung and Apple lost market share in 2014 by Gartner’s estimates, albeit Samsung took the brunt with a 6.2 point drop in market share. However in overall unit volumes for all of 2014, Samsung sold over 307 million smartphones, far outpacing Apple’s 191 million. From a supply chain scale and volume perspective, Samsung appears to stand tall, and yet, its supply chain does not garner the accolades that Apple garners.

Market share gains came from Lenovo, Huawei and a broad category grouped as “Others”. Readers might recall that Lenovo recently acquired the Motorola brand of smartphones and that Lenovo has strong market share within China.  That “Others” category, which supposedly consists of brands such as China based Xiaomi as well as India based producers, gained over 5 points in global market share. These producers are garnering increased consumer attention across emerging and developing markets, offering far more cost affordable features and options. Their momentum is collectively rising.

As consumer electronics and telecommunications focused supply chains know very well, the most important trend to focus on is overall scale, namely how many installed smartphones exist to generate more profitable and recurring electronic content sales. The 1.2 billion added smartphones in 2014 provides ample evidence of that potential.

From our lens, the most staggering statistical trend for global product development and supply chain teams to dwell on is that according to Gartner, Google’s Andriod operating system now powers upwards of a billion phones, up from 761 million recorded in 2013.

The takeaway is one that many a supply chain or product management planner should know all too well. Rather than a shorter-term focus on the latest quarter, the more meaningful analysis is to focus on bigger picture market insights and individual geographic country  data reflecting on market shifting.

The desired business outcome for smartphone focused supply chains is not so much the profitability and margin of the hardware, but rather the time-to-market and scale of installed devices.

Bob Ferrari


More Information Comes to Light Regarding Speculation that Apple is Developing an Electric Car

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Supply Chain Matters provides a brief update to our previous commentary regarding Apple’s reported potential development of an electric powered car. More information has come to public light, information pointing to development of advanced battery component capabilities for larger applications.

Today’s edition of The Wall Street Journal echoes a published report from Reuters that A123 Systems, a lithium-ion battery developer and producer is in the process of filing suite with Apple for what that company alleges as “an aggressive campaign to poach employees.” The compliant names five employees that have defected to Apple or appear to be in the process of recruiting other existing A123 employees to join Apple.

According to the Reuters report: “Apple has been poaching engineers with deep expertise in car systems, including from Tesla, Inc., and talking with industry experts and automakers with the ultimate aim of learning how to make its own electric car, an auto industry source said last week.” In its reported lawsuit, A123 believes Apple aims to build a competing battery business partially relying on the expertise from its former employees.  The employees in question, who initially joined Apple in June of last year, were reported to be working of A123’s most critical projects, and by joining Apple, they violated their employment agreements.

Neither Apple nor A123 have responded to both media outlets in requests for confirmation.

A123 was initially funded in-part by a research grant in 2009 from the U.S. government as part of a broad economic stimulus program as a result of the severe recession at the time.  A123 Systems, who was awarded a $249 million matching, grant to construct world class lithium-ion battery manufacturing facilities in the U.S., and Johnson Controls was awarded a similar amount to deploy advanced battery supply capabilities. A123 had been previously designated by Chrysler as its prime battery supplier, while Johnson Controls, in a joint venture with France’s SaftGroupe, was previously chosen to be a primary battery supplier to Ford Motor Company. Later however, A123 ran into a number of business challenges and had to file for bankruptcy in 2012.

These notion reinforces the speculation that we raised in our previous commentary, namely that if Apple has serious intent to produce electric cars, it needs to invest in product design and manufacturing sourcing of batteries.

Bob Ferrari


Reports of Apple Designing and Producing a Concept Electric Car

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Business media including the Financial Times and the Wall Street Journal reported last week that Apple was working on a secret research lab (not so secret anymore) possibly directed at developing a concept electric car.  According to these reports, under the code name “Project Titan” Apple has several hundred employees working at this research lab designing a concept vehicle that resembles a minivan.

Apple, of course, has declined comment to any of these publications.

According to the published WSJ report, the size of the project team and the senior executive hires are indications of seriousness, with Apple CEO Tim Cook approving the development project almost a year ago.  Once more, the report indicates that Apple executives have flown to Austria to meet with contract manufacturers.  The publication names the Magna Steyr unit of Canadian auto parts supplier Magna International as one potential party involved.

The report accurately notes that manufacturing an automobile is enormously expensive with a single plant costing upwards of well over $1 billion. Thus, it should be of little surprise that Apple might be investigating existing contract manufacturing options.

Auto supply chain teams know all too well that sourcing production in any particular country and transporting autos among global regions can be an expensive proposition without volume and market scale. It’s clearly not the same as shipping iPhones and iPads or for that fact, ramping-up new product and supply chain labor resources to coincide with a product development lifecycle. Once more, intellectual property (IP) protection becomes a larger consideration because of the nature of the multiple components and new technologies that may be involved. For electric powered vehicles, the design and production cost of the batteries is the single most important material and product margin component.

Another parallel that these reports bring forward is that if Apple becomes serious in pursuing this foray into electric cars, it will likely be a competitor to Tesla Motors, who has been pursuing a vertical integration strategy including the design and production of its own electric storage batteries for automotive and solar energy storage use. Tesla elected to invest in a former Toyota auto factory located in Fremont California.

Certainly, there will be continued speculation as to what Apple ultimately decides to do.  However, in the light of our previous Supply Chain Matters challenge to Apple to invest more in U.S. or North America based production, Project Titan could provide the opportunity to consider such an investment commitment, either contract manufacturing or owned manufacturing investment.  North America automotive production plants and their associated supply chains have proven world class competitiveness and indeed are exporting vehicles to global markets.

However, in light of our previous commentary noting excess auto production capacity across China, Apple may elect its familiar new product introduction and contract manufacturing model.

Bob Ferrari


A Disappointing Announcement from Apple

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Supply Chain Matters has featured prior commentaries concerning GT Advanced Technologies a now defunct Apple supplier that incurred a sudden bankruptcy filing in the fall of last year. A series of new product focused events regarding the ramp-up volume production of an advanced form of sapphire glass led to the supplier’s decision to seek bankruptcy protection.

Included in this unfortunate series of events was a 1.3 million square foot production facility near Mesa Arizona that was slated by GT Technologies to be utilized for volume production. With the bankruptcy proceedings, Apple has now inherited this facility.

Supply Chain Matters has taken Apple somewhat to task, in not being more proactive and meaningful in its prior 2012 commitments to move more of its ongoing manufacturing efforts back to the United States. We have openly challenged Apple to make good on such a commitment as reflected in our commentary of July 2014. Apple CEO Tim Cook at the time indicated to NBC News that the non-availability of important required skills was the most significant factor in Apple’s consideration for shifting any higher volume production back to the U.S.

We were therefore again somewhat disappointed to read of the news that Apple now plans to invest $2 billion in the building of a command data center at the GT Technologies facility in Arizona.  According to business media reports, Apple expects to start construction in 2016, after GT Technologies clears out of the facility.  Upwards of 700 total manufacturing jobs are lost. The tradeoff will be 150 data center staff employed at what is sure to be a state-of-art lights out advanced data center. According to a prior report by The Wall Street Journal, the state of Arizona had previously provided $10 million in incentives to make way for the manufacturing facility.  Not so for the current re-use.

Now some readers may obviously challenge our viewpoint with the argument that Apple’s business model and ongoing obscene profitability is more about growing online services and electronic content distribution emanating from its millions of installed iPhones, iPads and Macs. Yes, that argument has meaning. But, Apple’s management team, under pressure from U.S. based consumers with increased awareness of holding global corporations accountable for their social responsibility and manufacturing sourcing practices, made that increased U.S. commitment to appease such concerns, albeit a couple of hundred million dollars in scope.

Thus, our disappointment is that a $2 billion investment could well have been applied to a state-of-the art manufacturing assembly facility or to supporting a component supplier’s efforts to source additional production in the U.S. Or, Apple could have elected to invest a significant sum in training and preparing U.S. based manufacturing talent.

When a company like Apple is deservedly ranked number one on nearly every researcher’s top supply chain listing, the ranking comes with a high bar of expectations.  We all expect Apple to set world class benchmarks in many supply chain capabilities including supplier and social responsibility as well as balanced sourcing of supplier and manufacturing capabilities.

Thus, we will not back off from our prodding of Apple.

As we declared in July: “There is no question that Apple has the financial resources and the public relations savvy to make a U.S. production and supply chain sourcing effort far more meaningful, impactful and visible.”

From our lens, the decision to re-purpose the Mesa Arizona facility was another opportunity lost to make good on a prior public commitment.

Then again, China and Asia based production affords Apple far more inherent flexibilities including increased margin pressures on suppliers while demanding the ultimate in scale-up and scale-down flexibilities.

When, if ever, will this consumer electronics giant increase its investment in U.S. production capability?

Readers weigh in- What’s your view?

Bob Ferrari


Evidence of a New Business and Supply Chain Headwind: A Stronger U.S. Dollar

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During this period of earnings announcements for the December-ending quarter, a new and significant headwind, the effects of the U.S. dollar, has appeared for industry supply chains with operations anchored in the United States.  That was significantly delivered to Wall Street by yesterday’s earnings announcement from Procter and Gamble, which currently has nearly two-thirds of its revenues coming from outside of the U.S. Procter and Gamble was not alone, even the likes of Apple encountered the same headwinds.

P&G reported a 31 percent drop in profit as the stronger U.S. dollar diluted the effects of a modest 2 percent organic sales growth. Net income dropped nearly a billion dollars from the year earlier quarter. According to business media reporting, foreign exchange pressures reduced net sales by 5 percentage points. Once more, P&G indicated that these currency effects will continue to be a drag within 2015, potentially cutting net earnings by 12 percent or in excess of another billion dollars.

The implications are obvious including a continued selloff of underperforming brands and businesses.  One published financial commentary report by The Wall Street Journal implied the continuance of “ruthless cost cutting” and a continued slim-down of brands. P&G has further undertaken ongoing efforts to source more production among emerging global regions, and those efforts are likely to accelerate in momentum.

The strong headwinds of currency were not just restricted to consumer product goods. Today’s WSJ reports that it is now evident that:

“The currency effects are hitting a wide swath of corporate America- from consumer products giant Procter and Gamble Co. to technology stalwart Microsoft Corp.  to pharmaceutical company Pfizer Inc.. Those companies and others have expanded aggressively overseas in search of growth and now are finding that those sales are shrinking in value or not keeping-up with dollar-based costs.”

Further cited was a quote from the CEO of Caterpillar indicating: “The rising dollar will not be good for U.S. manufacturing or the U.S. economy.” The obvious fears for investors and economists alike is that the U.S. dollar’s explosive gains will backfire for U.S. based companies by reducing the price attractiveness of goods offered in foreign countries as well as reducing the value of foreign-based revenues.

The implications to U.S. centered industry supply chains are the needs for yet further shifting of strategies and resources. The existing momentum for U.S. manufacturing may well moderate with these latest developments. Initiatives directed at supporting increased top-line revenue growth now have the added challenges for more flexible, global-wide sourcing of production and distribution needs. Operations, procurement and product management teams that believed that they could get a breather from draconian and distracting cost-cutting directives will once again face the realities of having to cut deeply into domestic focused capabilities and resources.

We often cite the accelerated clock speed of business as a crucial indicator for agility and resiliency for industry supply chain strategy. Here is yet another example where perceptions of a  booming U.S. economy quickly change to the overall business and supply chain implications of the subsequent currency effects.

Bob Ferrari


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