How Apple Stays Ahead of the Game

An interesting Quora discussion has been making its way around the web this morning. In particular, a post written by an anonymous user that does a good job explaining Apple’s ability to stay on the cutting edge of technology seems to be very popular.

Steve Jobs himself said that the original iPhone was 5 years ahead of the competition. While that is a debate for zealous Android fans software-wise, most would agree it’s indisputable hardware-wise. Ever wonder why it took competitors a few years to match the iPhone’s touchscreen response?

It’s no secret that Apple is sitting on a truckload of cash. Most investors don’t like a company hoarding cash because it’s a waste of assets. It earns almost nothing in the bank and most believe it would be better spent on strategic acquisitions or given back to shareholders.

According to Anon User, Apple is without a doubt spending its money strategically:

“When new component technologies (touchscreens, chips, LED displays) first come out, they are very expensive to produce, and building a factory that can produce them in mass quantities is even more expensive. Oftentimes, the upfront capital expenditure can be so huge and the margins are small enough (and shrink over time as components become commoditized) that the companies who would build these factories cannot raise sufficient investment capital to cover the costs.”

Apparently, Apple uses its money to pay for the construction costs (or most of it) of these facilities in exchange for exclusivity on the factory and its products for an allotted amount of time. This allows Apple to release groundbreaking products that are initially impossible to duplicate.

This is also how Apple negotiates cheaper component costs. For instance, “I’ll build you this factory to mass produce your new super slim 8MP camera sensors if you give Apple 6 months exclusivity on the sensors and then 20% off each unit after that.”

“If it feels like new Apple products appear futuristic, it is because Apple really is sending back technology from the future. Once those technologies (or more accurately, their mass production techniques) become sufficiently commoditized, Apple is then able to compete effectively on cost and undercut rivals.”

Though we obviously can’t confirm anything, the anonymous poster’s explanation of Apple’s wicked supply chain strategy is very intriguing. We’ve heard before that the Cupertino company held some weight with overseas parts manufacturers, but nothing compared to this.


[Fortune via TiPb]