SPECIAL REPORT-For Apple suppliers,loose lips can sink contracts
8:40 pm ET 02/17/2010 - Reuters
STRICTLY CONFIDENTIAL
It is unlikely that Apple tells security guards across the Pacific how to go about their business.
The company, which spends billions of dollars on components and contract manufacturers, has a code of conduct that spells out how those working in its supply chain should be treated -- "Suppliers must be committed to a workplace free of harassment," states one. To ensure compliance, Apple periodically audits its suppliers.
But the scuffle in Guanlan does underscore the intense pressure many contractors feel to clamp down on the information flow.
Another way Apple keeps leaks to a minimum is to bring suppliers in at the absolute last minute.
"What usually happens is that we will receive a call from Apple, and by then they usually already have some idea of what exactly they want," said an official at a component supplier, who, like nearly everyone else interviewed for this story, would speak only on condition of anonymity.
"They usually give us a couple of options, we present some stuff to them, and they look at quite a lot of samples before coming to a final decision, sometimes just weeks before the rumored launch," he said.
Apple also helps keep its components out of the mainstream by insisting on custom designs rather than off-the-shelf parts -- a practice that leaves many suppliers frustrated.
An official at a South Korean supplier who said he has participated in Apple projects complained that the company sometimes makes unreasonable requests.
"Apple also wants unique size and specifications," he said. "That means we won't be able to use a common platform or rework those components to serve other clients. And if there's any inventory left, it cannot be used any other way.
Not surprisingly, landing a contract with Apple will always include a confidentiality clause. And they usually come with stiff penalties in the event that a breach is discovered, said sources at some suppliers. These insiders added that such agreements often come on top of unannounced checks by Apple officials to maintain standards.
Two sources familiar with the matter said they were not aware of any company that has been fined for breaching a confidentiality pact. But they say a number a suppliers have been verbally warned that they were in danger of losing their contract if suspected leaks persisted.
The difficulty lies in proving the source of a leak. In the absence of solid evidence, the most Apple can do is to switch suppliers once the contract runs out, the sources said.
"Unless there's a recording or an email that can be clearly identified to a certain Apple supplier, it's all going to be a blame game with everyone pointing fingers at everyone else," one of the sources said.
Hon Hai, the huge Taiwanese manufacturer with units in China, has gone to great lengths in the past to maintain its own secrecy.
In a high-profile case in China in 2006, Hon Hai sued two Chinese reporters and asked for 30 million yuan ($4.4 million) in damages for exposing alleged subpar employment practices.
The amount was later reduced to a symbolic 1 yuan, after stinging public criticism was directed at Apple. Various groups including Reporters Without Borders wrote to Apple chief Jobs asking him to intercede in the case.
Apple's audit of Hon Hai's facilities after the case found that it was in compliance with a majority of its requirements under its supplier's code of conduct. But the company did find a number of violations that it was working to address, though it declined to disclose the specifics.
In another case that made global headlines last year, an employee in China for Foxconn was believed to have jumped to his death after being interrogated by his employer. According to local press reports, he was under suspicion of taking an iPhone prototype -- to which he had access -- out of the factory. (Additional reporting by Rhee So-eui in Seoul, Gabriel Madway in San Francisco and James Pomfret and Don Durfee in Hong Kong; editing by Jim Impoco and Doug Young) |
