Apple for the day

Charlie Osborne has a SmartPlanet extract from a Bloomberg article by Adam Satariano about Apple:

Apple Inc. is putting a record ten billion dollars to work in new technology, from assembly robots to milling machines, that consumers will never see.
The attention Apple Inc. pays to manufacturing tools was evident in 2010 when it built the iPhone 4. At the time, the product-development team needed a machine to ensure new gyroscope technology that adds motion-detection capabilities for video games and other applications was working properly on the smartphone, said a person who worked on the project.
To get a jump on rivals like Samsung Electronics, and lay the groundwork for new products, Apple is spending more on the machines that do the behind-the-scenes work of mass producing iPhones, iPads, and other gadgets. That includes equipment to polish the new iPhone 5c’s colorful plastic, laser and milling machines to carve the MacBook’s aluminum body, and testing gear for the iPhone and iPad camera lenses, said people with knowledge of the company’s manufacturing methods, who asked not to be identified because the process is private.
The spending, which Apple outlined in its fiscal 2014 capital-expenditure forecast, underscores how the world’s most valuable company is diving deeper into designing and inventing technology for its manufacturing process. Apple is increasingly striking exclusive machinery deals, said the people familiar with the work, outspending peers on the tools that it then places in the factories of its suppliers, many of which are in Asia.
“Their designs are so unique that you have to have a very unique manufacturing process to make it,” said Muthuraman Ramasamy, an analyst with consulting firm Frost & Sullivan, who has studied the use of the machinery. “ Apple has so much cash that they can invest in cutting-edge, world-class machinery that is typically used for aerospace and defense.”
Chief Executive Officer Tim Cook, who helped create Apple’s vast supply chain before succeeding Steve Jobs as CEO in 2011, is pumping money back into the business as sales growth has stagnated amid competition from Samsung and others. While designing a manufacturing process has long been part of Apple’s product creation, the task has taken on heightened urgency: The company’s fiscal 2014 capital expenditures excluding retail spending are up sixty percent from 2013 and almost ten-fold since 2008.
The billions that Apple has forecast for fiscal 2014 capital expenditures is a fraction of its $171 billion in sales last year, and some of the money is going toward building its new headquarters in Cupertino, California. Still, Samsung, which has earmarked about $22 billion in capital expenditures this year, is the only consumer-electronics company outspending Apple, according to data compiled by Bloomberg. By contrast, Hewlett-Packard shelled out $3.7 billion last year, and Sony spent $3.95 billion.
Apple’s work on its manufacturing process typically begins in the industrial design team led by Senior Vice President Jony Ive. The group comes up with ideas, then works with the company’s hardware-engineering group to develop large-scale methods for getting the products built, since some of the techniques Apple uses have only been applied to making small batches of goods, said people with knowledge of the process.
Apple engineers often spend weeks at facilities in Asia, making sure the parts and equipment they buy or make are working properly, people familiar with the work said. The company has hired robotics experts and its website has several job openings for engineers who can operate high-end manufacturing equipment. Doug Field, a senior engineer who worked with Ive’s design group, recently parlayed the experience into a new job at Tesla Motors as vice president of design for new vehicles.
Apple’s approach contrasts with other technology companies, which typically partner with contract manufacturers to handle much of the engineering work involved in getting a product made in large numbers, said Cormac Eubanks, product development director at industrial design firm Frog Design. “Most companies will hire a design firm to create a rendering of a product, throw it over the wall to China and then it’s the Chinese engineers who do the detailed engineering work,” said Eubanks, a mechanical engineer. “What Apple does is hard and it takes a lot of time and money.” Steve Dowling, a spokesman for Apple, declined to comment.
The attention that Apple pays to manufacturing tools was evident in 2010 when it built the iPhone 4. At the time, the product-development team needed a machine to ensure new gyroscope technology that adds motion-detection capabilities for video games and other applications was working properly on the smartphone, said a person who worked on the project. No testing equipment existed for the scale Apple needed, so its engineers built one, said the person.
The resulting contraption has a granite base and cubes that spin several iPhones around thirty degrees a second to test that the movement-tracking technology is functioning, said the person. Apple then had enough of the machines made to place at the end of suppliers’ assembly lines in China for iPhones to run through, said the person.
For its 2012 iMac redesign, Apple made the computer thinner, with a new production technique for laminating a display to a piece of cover glass, said a person with knowledge of the matter.
Apple also created a method for putting an anti-reflective coating on Macs by adding an electrical charge to the display, causing anti-reflective particles to stick to the screen, said the person. The technique, previously done at small scale for medical devices and astronomy telescopes, hadn’t been automated to produce millions of Macs a year, said the person.
Apple does more than just buy machinery for its suppliers. The company also uses its $146.8 billion cash hoard to serve as a quasi-bank by providing financing to build factories, said Horace Dediu, a former Nokia Oyj researcher who has studied Apple’s capital expenditures and runs Asymco.com.
A case in point came earlier this month when Apple struck a deal with GT Advanced Technologies, a maker of furnace equipment that is used to produce sapphire materials that cover smartphone lenses and home buttons. Apple received an exclusivity agreement from GT Advanced for the furnaces in exchange for making a prepayment of $578 million. GT Advanced said it would pay Apple back over five years, starting in 2015. The deal has “limited our ability to take additional” business, Thomas Gutierrez, GT Advanced’s CEO, said in a conference call with analysts. GT Advanced said in its announcement that revenue from the division that includes the kinds of machines Apple is buying will increase to eighty percent of the company’s total business, predicted to be $600 million to $800 million, up from 31 percent previously. Jeff Nestel-Patt, a spokesman for GT Advanced, declined to make any additional comment or make executives available to discuss the project.
With the spending, Apple also is laying the foundation for new products. Cook said last month the company is preparing devices in technology areas where it doesn’t currently compete. The company has been exploring building a wristwatch-like wearable-computing device, as well as new television products, people familiar with the plans have said. Apple also is working on new iPhone designs with bigger screens and sensors that distinguish heavy or light touches, a person with knowledge of the plans said earlier this week.
The spending is also playing a role in Apple’s push to add more production in the US after years of doing most of the work in Asia, a practice that has led to worker abuses. The machines for GT Advanced will be used at a new plant in Arizona. And Apple’s new Mac Pro, which will go on sale next month, will also be assembled in the US with robotics technology used in automobile manufacturing. “Apple deploys capital as a competitive advantage,” Dediu said.

Rico says the big dog, as ever, does what it wants...