Apple may outsource iMacs

A manufacturer says Apple Computer may soon use outside help, but a company spokesperson said Apple had no such plans.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
Overwhelmed with demand for its popular iMac, Apple Computer may soon resort to using outside manufacturers to maintain supplies of Macintosh computers, harking back to problems the company has historically had with meeting demand for popular products.

Eugene Sapp, president and COO of SCI Systems, the world's largest contract manufacturer, yesterday said that there is a "very good chance" that Apple will assign some iMac production to outside firms, including SCI, in a speech given at the NationsBanc Montgomery Securities investment conference in San Francisco.

Apple said that, for now, no such plans have been made. "We continue to assess opportunities to optimize manufacturing capacities both internally and externally," said an Apple spokesperson, who added: "We currently have no plans to outsource manufacturing."

Sapp said the Cupertino company is considering farming production out because demand for the all-in-one computer is exceeding projected demand as well as Apple's ability to make them. Apple has been cranking out iMacs around the clock, but subsequently has had fewer resources to devote to production of other products.

The top two Apple PowerBook notebook models, in particular, have been in limited supply since their introduction, a situation the company said it hopes will be rectified by the end of September.

There are indications that supplies of high-end desktop systems are limited as well, as dealers convert orders for the 366-MHz Power Mac G3 that was expected in August but cancelled at the last minute to G3's with 333- and 300-MHz processors.

"The iMac is exceeding expectations. It looks like we may be bringing in some of that product," Sapp noted. "The iMac seems to selling higher than expected and seems to be putting some strain on their manufacturing capacity."

SCI has manufactured computers for Apple in the past, and SCI's plant in Fountain, Colorado, was actually purchased from Apple in 1996. Once Steve Jobs came back to Apple, however, the company began to move more of its production internally.

"He decided his internal factories were underloaded," said Sapp, whose company also produces computers for such PC vendors as Compaq and Hewlett-Packard. Analysts speculate that the decision to move production back in-house was possibly due to a desire to improve quality control.

"Apple had cut down manufacturing capacity considerably in recent history to help streamline operations and take them out of an area that wasn't core competency for them," said Kevin Hause, PC analyst for International Data Corporation, but improved quality control could be one reason Jobs moved production back to Apple's control.

Another reason, Hause noted, is that in moving to a build-to-order business model, companies need to "seamlessly" integrate order and production systems. Such integration and in-house control is not necessary for mass production items that are similarly configured, such as the iMac.

Since its August release, the iMac has helped turn around Apple's downward sales spiral--to the point where production capacity is strained.

Lou Mazzuchelli, a financial analyst with Gerard Klauer Mattison, recently told CNET News.com his sales forecast has been increased to 450,000 units from 350,000 by the end of the next quarter (Apple's first fiscal quarter of 1999). He expects the company to sell 250,000 units for the current quarter, which puts the iMac on pace to be Apple's most successful product launch ever.

If sales remain strong, the product could land Apple back among the top five PC manufacturers, according to IDC.