by Matt Margolis
Bloggers and analysts seem focused on looking at Apple’s previous product release dates to determine the future release dates. I personally believe that is not the best idea. The answer to determining Apple’s 2014 product release dates might lie within the review of Apple’s supply chain. Courtesy of SupplyChainOpz, I was able to get a hold of Apple’s supply chain processes based on a 2013 publication. This data is now a year or two old but this simplistic view of Apple’s supply chain process still holds true today.
The Apple process diagram is below and I would describe this as a continuous process flow. It has been speculated that Apple plans their product releases up to 4 years in advance of their release. According to the Boston Herald Steve Jobs in 2011 left Apple 4 years worth of product blueprints for Apple’s upcoming products before his unfortunate death in October 2011. The bottom line is Apple’s upcoming iPhone 6 product concept and design was determined years before Apple released the iPhone 5s last fall.
Mac Manufacturing (Texas plant) – Apple was vocal about bringing back some of the Mac manufacturing from China back to the United states in December of 2012. It took nearly six months for Apple to announce that they had selected a location and that they had decided to build a new Mac assembly plant in Texas. The origin of Apple’s plans to open up a Mac manufacturing plant in the US was likely kicked around for months if not years prior to the announcement to the December 2012 announcement of their plan to bring back Mac manufacturing from China. On December 2013, Apple announced that they had begun taking orders and were manufacturing Mac’s in Texas.
It took Apple well over 6 months from the time of announcing their plan to the time to select a location for the facility. You can guarantee that the discussions and plan to bring back manufacturing into the US had been kicked around months if not years earlier than the December 2012 news release. The important message to takeaway from the Mac manufacturing plant is that it takes time to find a location that can compete on costs to run a plant as well as the availability of skilled workers necessary to manufacture the goods. Another critical evaluation item is the cost of energy which directly correlate to the ability to use green energy including solar power to reduce the costs energy that is necessary to power a manufacturing facility.
Sapphire Cover Screens (Arizona plant) – Apple has been very secretive about the nature of the Apple sapphire plant since the very beginning. Apple officially signed a confidentially agreement with a diversified technology company by the name of GT Advanced Technologies on August 24, 2012. GT was previously known for being an equipment provider for the solar and sapphire LED market, but they have been trying to crack into the sapphire cover screen business for mobile phones and tablets for the past 2 years. Apple is so secretive about the Mesa, AZ sapphire plant they created a new company named Platypus Development when they acquired the First Solar facility for $113.6m. Apple reportedly is investing an additional $2B of capital expenditures for the sapphire manufacturing facility, which will produce an unprecedented amount of sapphire cover screens for various Apple devices.
On December 14, 2013 Meyer Burger was awarded a $80m order for diamond wire saw based cutting systems and replacement diamond materials. The initial deliveries diamond wire saw based cutting systems were expected to begin in January and be completed before the end of June. The replacement diamond materials were expected to be spread over all of 2014. Meyer Burger has an existing partnership with GT Advanced Technologies and Meyer Burger has openly divulged to GT that they would are working on second-generation cutting techniques.
The only news that has been made public regarding the status of the Mesa sapphire plant were unearthed after digging through public records and job posting data, without this evidence Apple would have let all of us in the dark. I tweeted the news of Apple’s plans to hire for positions related to the iPhone and iPod at the Mesa, AZ sapphire plant on January 13th. On January 14th, 9to5Mac published a story detailing Apple’s hiring plans, specifically the recently posted manufacturing design engineer position for the iPhone/iPod at their Mesa, AZ location. On January 29th, 9to5Mac brought to light “Project Cascade,” which indicating Apple’s aggressive plans to bring the sapphire plant live by February to manufacturer a new “critical” component. A week later 9to5Mac broke news that Apple had procured enough furnaces to make 100 to 200 million sapphire iPhone displays in Arizona. Over the past two weeks I’ve been able to retrieve additional documentation indicating that the plant went live with 140 tools (sapphire growth furnaces) on January 14th and further evidence that the sapphire plant had rapidly ramped up sapphire production by the middle of February.
Apple has been planning to introduce sapphire cover screens for quite sometime. It took over a year to close on the First Solar manufacturing facility in Mesa, AZ after Apple signed their confidentially agreement with GT Advanced to provide sapphire cover screens for Apple’s devices. Just weeks after GT and Apple signed their confidentiality agreement GT’s management abruptly announced that sapphire high volume, scalable, low-cost sapphire cover screen production is now available with the commercial availability of our technology during their Q3 2012 conference call with investors and analysts (full quote below). This was a complete 180 degree change from any statement GT had made regarding the sapphire cover screen opportunity. It was clear as far back as November 2012 that Apple had already tapped GT on the shoulder to deliver high volume and low-cost sapphire screens across Apple’s 2014 product line. Recent reports have indicated that sapphire would only cover the high-end 5.5″ iPhone as well as the iWatch but the volume of sapphire that will be generated from this plant as urgency of Apple to bring this plant life just doesn’t support sapphire screens showing up on just higher end 5.5″ iPhone and the iWatch in 2014. The sapphire project has been in the works for years and Apple’s sense of urgency, to bring the plant “live” and the around the clock work going on inside and outside of Mesa c facility to get it completed by June clearly indicate that Apple has much bigger plans for sapphire cover screens beyond 10 million iWatches in 2014 a few million high-end 5.5″ iPhone 6 phones. I’ve said it before and I’ll say it again, GT could have supplied enough sapphire for the iWatch and the high-end 5.5″ iPhone 6 from their Salem, MA sapphire facility that measures only 25,000 square feet. The Mesa sapphire plant will produce an unprecedented amount of sapphire screens in 2014 for use in Apple’s iDevices.
High-volume, scalable, low-cost sapphire production is now possible with the commercial availability of our technology, and breakthrough fabrication technologies have and will continue to drive out significant costs. (Seeking Alpha GTAT Q3 2012 Conference Call)
A8 Chips – Apple just unveiled the 64-bit A7 processor just last fall during the iPhone 5s product release. Less than 6 months later after the release of the iPhone 5s with A7 chips reports have surfaced that TSMC and Samsung will be providing the A8 chips for Apple’s upcoming iPhone 6 and iPads. This report also notes that Apple appears to be pushing the industry suppliers to adopt 64-bit processors. This is not the first time Apple was a trailblazer for new technology. Apple was the first to introduce sapphire covered camera lenses when they rolled out the iPhone 5 in 2012, and in 2013 they introduced biometric fingerprint scanners made of sapphire, which covered the home button on the iPhone 5s. Since 2012, other smartphone manufactures have tried to catch up to Apple’s standard and have followed suite with sapphire camera lens covers and biometric fingerprint scanners. It should also be noted that Apple created a new electronic market for tablets when they introduced the iPad during the early part of 2010.
TSMC (Taiwan Semiconductor Manufacturing Company) announced in December 2013 that they would begin high volume production of the A8 chip next month (January 2014). In January a report indicated that Amkor Technology, STATS ChipPAC and Advanced Semiconductor Engineering will handle the packaging of the A8 processor. A report in March reconfirmed that TSMC that production of the A8 chip was already in high gear in January easing any concerns that there would be a A8 chip shortage in 2014.
iPhone 6 Touch Panel Displays – On April 1st Reuters reported that Japan Display Inc, Sharp Corp and South Korea’s LG Display Co Ltd have all been tapped to make the touch panel displays for the upcoming iPhone 6 for both the 4.7″ and 5.5″ models. The report indicated that the 4.7″ touch panel display would be made first while the 5.5″ touch panel display could be delayed. The report also indicated that both iPhone 6 screens are expected to use in-cell touch panel technology. In cell touch panels are built into the screen which allows for thinner layers versus standard touch panel films. The in-cell touch panel technology was introduced with the iPhone 5. The Reuters report indicated that production of the iPhone 6 touch panel displays are expected to be ramped up by May.
LPDDR4 DRAM memory – Micron’s Elpida is expected to provide their latest DRAM memory know as the DDR4. Micron reported a $250 million dollar payment that was received from a customer for in advanced of product that is expected to be supplied through September 2016. Micron’s Elpida has been a long-time supplier for Apple products. Last September a teardown by Techinsights of Apple’s iPhone 5s and iPad Air revealed that Elpida’s DRAM Memory LPDDR3 memory was being used on the device. Ifixit’s teardown of the MacBook Air in June also confirmed the use of Elpida’s DRAM Memory LPDDR3. Precedent has been set and confirmed that Apple is using Elpida’s DRAM memory across their most recent products released in 2013 that continue to be produced in 2014. Micron announced on April 2nd that they were ramping production of their next generation DDR4 module and is expecting shipments to begin during the quarter ending May 31st.
iPhone Battery – In March reports surfaced that Apple was looking to push out an automated production that would fully manufacture iPhone batteries. Apple has already automated the Mac Pro and iMac production lines so this kind of news should not come as a major surprise given Apple’s push towards automation. Within the last week pictures of reportedly of the iPhone 6 battery have surfaced online. These photos could be clear evidence that Apple has indeed ramped up their battery production and has already moved over to automated production lines to produce the iPhone 6 batteries.
iPhone Assemblers (Foxconn and Pegatron) – Various reports in March surfaced indicated that Pegatron, who was reportedly tapped to assemble iPhones and iPads, had opened up a new facility and was in the midst of hiring spree to fill imminent iPhone 6 orders. It was also reported that Pegatron will begin assembly ramp of the iPhone 6 during Q2.
Look back to 2013
After examining the 2013 the reported production ramp ups ahead of the iPhone 5s and 5c launch last September it appears that Apple was able to go from production ramp to product launch in approximately 75 days. However, as it is noted below Apple did run into a significant inventory shortage and PR nightmare after they sold out of iPhone 5s devices in just 24 hours after the product launched. Apple did not specifically explain why there was a shortage of iPhone 5s inventory right after the product launched. What is interesting is that reports surfaced 5 weeks after the iPhone 5s product launched that Foxconn had begun running its facility around the clock and employing more workers on its production lines. Reading between the lines the issue may not been related to component shortage but a failure by Foxconn to exclusively meet Apple’s iPhone production needs on a timely basis. Key dates and links related to the 2013 iPhone 5s production ramp are listed below:
- July 10, 2013 – It was reported that Foxconn was set to hire 90,000 workers in preparation for the iPhone 5s assembly ramp
- July 18, 2013 – It was reported that integrated circuit (IC) orders were on the increase for the upcoming iPhone 5/s5c
- September 1, 2013 – It was reported that iPhone 5s/5c touch panel display manufacturers (Japan Display and TDK) had recently ramped up production over the summer for the upcoming iPhone 5s/5c launch
- September 20, 2013 – iPhone 5s and 5c launched
- September 22, 2013 – iPhone 5s reportedly sold out until October
- November 29, 2013 – It was reported that Foxconn (only assembler of iPhones in 2013) ramped up production capabilities to 500,000 devices per day in November 2013 to eliminate device shortages that occurred shortly after the iPhone 5s/5c went on sale in October 2013.
Apple experienced a iPhone shortage last September related to the iPhone 5s and it was an embarrassment for Apple and their assembly partner Foxconn. Although it is unclear of where the problem resided within the supply chain (components or assembly), a report that surfaced in November indicated that Foxconn had increased their manufacturing capacity at their plant to 500,000 devices to resolve the iPhone 5s shortage. A review of the 2013 iPhone 5s ramp news up indicated that Apple went from production ramp to production launch in approximately 60 to 75. The bottleneck appeared to be related to Apple’s manufacturing partner Foxconn, which failed to ramp up its assembly capacity enough ahead of the iPhone 5s release in September 2013
Apple made a significant change in 2014 to their supply chain. Apple has added Pegatron as a second assembly partner for the production of the iPhone and iPads. Pegatron in March, was reported to be in the midst of a hiring spree of workers ahead of the assembly ramp up of the iPhone 6 at their new facility during Q2. The combination of Foxconn and Pegatron should enable Apple’s assembly partners to build close to 1,000,000 iPhones a day at maximum capacity. Adding Pegatron to the assembly mix could lower the lead time to assembly Apple devices from 60 to 75 days that they experienced in 2013 to as low as 30 to 38 days for the iPhone 6 assembly.
Apple has also purchased and is currently delivering phases of their new sapphire manufacturing facility to their new component manufacturer GT Advanced Technology. The sapphire plant went live in January 2014 producing sapphire boules and has since ramped up its production significantly by mid February. TSMC began ramping up production of their A8 chip in January 2014 and confirmed in March 2014 that they are still on schedule. Japan Display Inc, Sharp Corp and South Korea’s LG Display Co Ltd, which are believed to be touch panel display suppliers of the iPhone 6 phones, are expected to ramp up production of displays by May 2014. Micron’s Elpida is expected to be the DRAM supplier for Apple’s upcoming iPhone 6 has indicated that they are ramping production of the DDR4 module on April 2nd. Micron announced during their most recent quarterly conference call that they expect shipments of the DDR4 modules to begin in the quarter ending May 31st. In March reports surfaced that Apple was looking to automate the battery line for the iPhone 6 and within the past week photos have surfaced that might indicate the iPhone 6 batteries are already being mass-produced.
Apple’s key component makers all appear to be currently ramped up or will be ramping up production by May, which is only a few weeks away. At the 5,000 foot level Apple is 2 to months ahead of their 2013 production pace, which leaves the door open for a summer release of the iPhone 6. Based on my review of the supply chain I don’t see any reason why Apple can’t and won’t launch at least one of the iPhone 6 models in time for your 4th of July celebration. Apple’s WWDC begins on June 2 in San Francisco and I believe this would be the perfect stage to introduce; the beauty, the thinness, the speed, the battery life, the increased size and the durability of the iPhone 6 for all to enjoy.
Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings