Construction Time Again: Should Apple Get Back Into Factory Ownership?

This image described by Goldman Sachs, Apple hardware, Asymco, Factory worker
Yesterday, we posted a story about Toshiba's new LCD panel-producing factory in Japan, and how said panel production would not only be beneficial to Apple's iPhone line, but that the House of Jobs itself was helping to underwrite the new plant.  Since then, Toshiba has vigorously denied that Cupertino's financial involvment is anything but a rumor.

But it got some people thinking.  People like our buddy Horace Dediu at Asymco, whose take on the cell phone industry in general we've referenced time and again. This time around, Dediu reflects on the fact that Apple themselves once built the factories that built their Macintoshes, and built them well.  Come the 90's, the three-headed monster of economics/flexibility/scalability/ convinced Apple to outsource its manufacturing needs to Asia.

Now, Dediu argues, it may be time to rethink this:

"For the past few decades outsourced manufacturing has grown in scale and scope as prices fell and quality increased. However there are signs that this global web of suppliers and assemblers is reaching a point of disruptive change…The real problem with Chinese factory towns is that they are not flexible enough. By concentrating facilities and workers, electronics manufacturers have improved on measures of scale and quality but are still only able to ramp up and down on individual products once or twice per year. This does not meet the need to increase responsiveness to markets and the pace of development and design. It also reaches some critical overweight mass. Capacity cannot double or triple again to meet the need of six billion consumers. There are signs that the business model must change."

Dediu (while conceding he is no expert in mass production) posits that Apple should take control of the manufacturing process again, build plants closer to where their products are consumed to reduce costs, delivery delays, and carbon footprints, and be able to ramp up/down a particular production line more quickly to respond to customer demand.

A different, but related, take on Apple's hardware comes from Bill Shopes at Goldman Sachs.  Shopes argues that "Apple's tremendous success in its most recent decade has been primarily driven by the evolution of its content and software platform, with the hardware devices serving primarily as platform delivery mechanisms."  Apple's hardware and software have always been joined at the hip (sometimes frustratingly so — hence the scads of iOS jailbreakers out there!), but it was the 2003 debut of iTunes that began driving Apple's revenue growth three times faster than its operating expenses.  In other words, the iDevices themselves may have originally captured the public's attention, but without a seemingly endless supply of apps to make them useful, they would have been flash-in-the-pan gizmos instead of the paradigm-changers that they are.

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