Apple Must Outsource Production

1998.10: It was the best of times. It was the worst of times.

Dickens said it first, but the words could just as easily have been written about Apple Computer in the year since Steve Jobs became interim CEO – or iCEO – for life.

The best of times: The entire product line has moved to the G3 processor, Apple now had build-to-order capability, the PowerBook G3 Series is the fastest (and coolest) laptop made, four consecutive profitable quarters, and the iMac is selling as fast as Apple can make them (#2 in unit sales for August).

The worst of times: Apple took a sales beating during 4th quarter of 1997, losing almost as much mind share as market share, and Apple is making the iMac as fast as it can sell them.

As I wrote in August (Apple Too Popular for Its Own Good?) – just days after the iMac went on sale – Apple doesn’t have the facilities to make more computers, whether iMacs, PowerBooks, or Power Macs. They only have three factories, and the day only has 24 hours. Apple is pretty much working at full production capacity – and we want more.

Apple did a bit of this to itself when it sold off a Colorado production plant to help the bottom line. But that’s history. Over and done – and we’ll have to live with it.

Apple needs increased production facilities, whether theirs or contracted through someone else. And despite four profitable quarters, I can’t see Apple investing in a new factory at this time. (Even if they did, it would take so long to build, they might lose current momentum.)

Apple has limited its success by building all its own computers.

Historically, Apple has occasionally outsourced production, such as working with Sony to design the PowerBook 100, then having Sony build it. So, although this hasn’t been a common practice for Apple, there is historical precedent for outsourcing production.

Why Outsource?

There are many arguments for contracting out iMac production: It avoids the expense of new facilities, it avoids increasing Apple’s payroll, it lets Apple sell more iMacs, and it frees facilities needed to keep up with Power Mac and (especially) PowerBook demand.

But more than that, it would give Apple the opportunity to focus on designing and building new models: the consumer portable, different types of iMacs, G4-based Power Macs, and maybe even a more compact PowerBook.

It’s especially the iMac category that interests me. Apple has created some great brands. Apple is one of the world’s most recognized brands. PowerBook has become synonymous with laptop. And iMac means “way cool.”

That’s the success Apple needs to build on. The iMac we know and love (or consider a bit too limited or too expensive) will undoubtedly be the first of a family of iMacs. Speculation includes a Pro iMac (17-20″ monitor, device bays, SCSI, FireWire), a faster iMac (300 MHz and up), a compact iMac (remove the monitor), and maybe even iMac game and video machines (video output to your TV, a DVD player, game controllers, and killer games).

But at this point Apple cannot produce a new iMac without cutting back one of its current models. Make less PowerBooks? No. Power Macs? No again. iMacs? Not with demand where it is.

If Apple is going to produce new models to expand its line, not simply replace older models, it needs increased production capacity. And the best way to get it is to outsource iMac production, freeing enough capacity in one factory to get new models going.

Further Reading

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