Apple just announced some impressive profit numbers: it’s first quarter with $20 billion in revenue and profits that exceed those of IBM, HP and Intel. Only Microsoft had higher profit, but not a higher market capitalization. The following graphic comes from the WSJ 10/19/2010:
The focus in the popular press on Apple’s success has been on how the consumer market loves their products and technology. For example, the WSJ article discusses how Apple’s bet on the consumer market has paid off relative to IBM’s focus on the business market. I agree that Apple has been remarkable at design. But to me, they don’ t get enough credit for how well they execute.
Consider the iPad. It went on sale April of 2010. We have sales numbers from the first two quarters – by the end of Q2 (Jun 26) they sold 3.3 million and in Q3 (ended Sep 26) they sold 4.2 million. That is 7.5 million units in the first 6 months of selling a product. The fact that they sold that many units means that they were able to produce that many units, which is the amazing untold story.
How many iPads might they be able to sell in Q4 of this year. Let’s look at the sales history of the iPod. Notice that they sold about 2.5 times as many iPods in Q4s as they did in the previous Q3. That means that Apple is on track to be able to sell about 10-11 million iPads in Q4. How can they ramp up the necessary capacity to make all of them? They don’t talk about their capacity management strategy, but I suspect the following are the keys to their strategy. First, they must be tracking sales weekly if not daily and making updated forecasts and comparing them to previous sales trajectories, like those of the iPod. Second, they have outsourced production to a flexible firm who can switch labor from other products to the iPad if necessary. Third, either they are securing component supplies or their supplier (Foxconn) is securing component supplies – you cannot assemble a product if you don’t have the components. Fourth, the iPad must be made with components that are either standard (hence there is lots of available capacity in the market) or easy to make (in the sense that the yields are high and stable already). On the last point, if the iPad were made with a component that is unusual or hard to make, Apple simply would not be able to ramp up production as quickly as they seem to be able to do.
Apple executes so well that they make it look simple. But it is a mistake to assume it so simple. To relate this to baseball, Mariano Rivera (the closer for the Yankees, i.e., the pitcher that comes in very late in the game with the job of defending a small lead) has two pitches that he throws with deceptive ease. It might be tempting to conclude that there should be many pitchers that could throw Mariano’s two pitch combo. Many can, but none have thrown them as successfully as Mariano. Quality execution is often underrated.