Cupertino

"Daniel Vidaña, a director of iMac supply management, says the scale Cupertino required was “insane.” On average, Apple was selling 5,000 iMacs per day. The operations team had to be ultra-efficient to avoid hemorrhaging cash, as the iMac was meant to be a low-cost product that families would buy. The multiple color options, he adds, amplified complexity and uncertainty. “I was in charge of the planning side of things,” Vidaña says. “I was telling the factories every week which colors, which models, had to be built. That was sent to our logistics teams and the manufacturers, but they weren’t doing it. Every day we got a report saying, ‘This is what we built.’ They were not adhering to our plan. They were not building what we wanted; they were building what was easiest for them. And they were only building in quantities they could manage or handle in the supply chain.”"

"Given Apple’s scale and manufacturing concentration, the result of this strategy is that Apple spawned the formation of major industrial clusters in which engineers from Cupertino would teach multiple factories how to, say, shape glass for the iPhone. So instead of being beholden to Lens Technology—the company that cut and tempered Corning glass for the first iPhone—Apple would constantly send engineers from Cupertino to train its rivals. That kept Lens on its toes, lest Apple choose a different supplier for the next-generation iPhone—a potential catastrophe as Apple, by 2015, was producing a quarter billion iPhones per year. Moreover, it kept Lens from raising its prices. So any company supplying Apple with some component was preemptively thwarted from believing it had any power to exert, because Apple made it known that it had options."

"Supporters of the R&D hubs say the negative view of them reflects the insecurities of engineers in Cupertino, who were losing their power as more decision-making got done in China. Before the hubs were built, Apple had been sending so many engineers to China on temporary trips that Cupertino convinced United Airlines to begin direct flights from San Francisco to Chengdu, three times a week, arguing that Apple would regularly buy enough of the thirty-six first-class seats to make it profitable. The 6,857-mile flight became United’s longest nonstop flight. Two years later, Apple again convinced United to begin flying nonstop—to Hangzhou, a tech hub on the outskirts of Shanghai. “Hangzhou is a bit of a schlepp from Shanghai,” says a former Apple executive. “Yes, you can take a bullet train, but for all the American guys getting off the plane from Cupertino, navigating the train station is kind of complicated. So Apple basically said to United, ‘Look, you put up a flight to Hangzhou and we’ll fill it for you.’ ” Apple’s signature line had long been that its products were “designed in California,” but the hubs began to indicate otherwise. China’s influence was growing, and as the hubs performed more work, the engineers there would openly question the need for so many of their counterparts to constantly fly in from America."

"Cook’s disdain for mediocrity was similar to that of Jobs, but it manifested itself in an entirely different way. He would persistently ask his managers for layer upon layer of information that flummoxed poor performers and exposed bullshitters. Parents know it takes only a few rounds of a toddler asking, “Why?” before their knowledge is exhausted, leading to frustration and made-up answers. Cook’s questioning was like that. He exhibited a memory and an understanding for data and planning that nobody in Cupertino had experienced before. A lower-level executive recalls Cook stopping people in the hallway ahead of a meeting to glance at their spreadsheets. Within a minute he might spot an error. “And if one number was wrong, he wouldn’t trust the whole spreadsheet,” this person says. “We just knew him as this Terminator machine. Like, he could tell if you were lying…. My boss would say: ‘If he calls on you and you get the number wrong, he’ll try again the next week. If that’s wrong, he’ll never call on you again.’ ”"

"For years, Cupertino had flown engineers into China by the planeload to oversee the ramping up of new products. Prior to Covid, Apple was booking “50 business class seats daily” from San Francisco to Shanghai, according to an accidental leak from United Airlines revealing Apple as its largest corporate customer. Suddenly that wasn’t possible. But every product Apple made had an in-region support team, and they were forced to step up their game. Apple’s partners, too—from Foxconn, Luxshare, and BYD to deeper layers in the supply chain—knew what they were doing. Apple had trained their engineers and, at times, orchestrated mini-crises to let the schedule slip and see how the suppliers would react. “I intentionally let one whole build just basically crater,” says a former engineering manager, describing an event before the pandemic. “It was an example for them to learn what it takes.” It was like the old parable about teaching a man to fish. “All of these suppliers, or a lot of them, have gotten to the point where they understand what it takes to develop an Apple product,” this person says. “And so when we stepped away, there’s a machine that’s already enabled, that knows what it takes to build a product.”"

"Within two years Apple had assembled a team. They called themselves the Gang of Eight. The group was composed of three new hires and five executives already working for Apple, spanning all major aspects of its business in China: operations and procurement, retail and marketing, government affairs, and Apple University. They would be Cupertino’s eyes and ears in the country. The first major task for the Gang of Eight was to work out what Apple’s story was. *Why was Apple in China? How was it contributing? What did Apple have to do to demonstrate its commitment?* Very little thought had been put into these questions. More broadly, their role was to find ways for Apple to contain its China risk and placate authorities so the company could continue to grow. It was an enormous mission. But even though Apple was under intense scrutiny and selling pressure on Wall Street, its biggest challenge was ill understood and all but ignored."

"In the years since, two narratives within Apple have developed regarding what happened in those eighteen days. One is that CEO Tim Cook underwent something of a twenty-first-century show trial: Beijing had deliberately accused Apple of something it knew wasn’t true, to demonstrate its power. The whole episode was a spectacle designed to make Cupertino understand its junior position in the partnership and then publicly kowtow. Some hard-liners in China certainly saw Cook’s apology this way: On social media one rejoiced that Apple had been compelled to “bow its arrogant head.”"

". But Gou grasped earlier than anyone that the value of working with Apple wasn’t the profits, it was the *learning.* Foxconn might not win much profit from Apple—it might even lose money at times—but the work itself, as well as the lessons Cupertino offered by having its engineers work side by side with locals in the factories, gave his team a deep education. Foxconn’s goal was to absorb these lessons and apply the skills to its other, more lucrative clients. “His people used to hate us, because they used to make no money out of us,” says an Apple operations executive."

"His handling of the situation earned him some credibility in Cupertino. It was now easier to accept that a soft approach to the reseller issue wasn’t the problem. But as Apple’s business boomed in China, the yellow cows were just one challenge. More broadly, Ford worried that Apple was losing leverage with the Chinese government and failing to exert its own power. As early as 2010 he’d told Bob Mansfield, Apple’s head of hardware: “All you gotta do is open up a factory in Vietnam and you’re gonna get some nervous Chinese government officials.”"

"Apple was under significant pressure to maintain its position as the lead innovator, justifying its higher prices. So the response by Cupertino was: “Let’s make the next iPhone so damn difficult to copy that they’ll go nuts or broke trying to copy it,” says a manufacturing design engineer."

"Years of living in Taiwan trying to convert people to the Mormon faith, coupled with his time in China, had taught Ford unwritten rules. He possessed street smarts that let him work the system in Apple’s favor. But he struggled to convey these concepts back to Cupertino and grew dismayed by some of their decisions. In 2012 higher executives chose to deal with the iPad trademark problem by paying Proview $60 million. It was a decision they could easily rationalize—global iPad sales that year would soar 61 percent to $31 billion. But to Ford, this rationalization missed what the fine signified."

"Steve Jobs held a comparatively low-key event for the launch. The live audience didn’t seem to get it, and Apple got blasted for the $499 price point. More effective was a seven-minute marketing video set to pop music and featuring artists Seal, Moby, and Smash Mouth lusting after the device. “I might have to steal your prototype,” says Moby. “I don’t know who your product’s designers are, but boy, you’re not paying them enough.” In the holiday quarter Apple shipped 125,000 devices, a solid start. But a few months into 2002, sales petered out to just 20,000 a month. Cupertino worried the device was a bit of a dud. “The business was on the teetering edge,” says an engineer who worked on several generations of the iPod. “We had a few months’ sales where it was like, ‘Oh my god, should we even continue this business?’ And ‘Will this survive?’ ” Fadell, exhausted and frustrated, even tried to quit. Jobs persuaded him to stay, elevating his position to overseeing both hardware and software for the iPod. But there were conversations at a high level that if sales didn’t improve, the device wouldn’t be renewed. “We just kept our heads down and kept working on making the product better, better, better,” an iPod engineer says. “We were pretty worried about [the low sales] from an overall business standpoint.” The second-generation iPod came out in August 2002, just nine months after the original. But that unit didn’t sell in impressive numbers either. The underwhelming figures contributed to that year’s profit warning, its third in just four years."

"What convinced him was a visit to Cupertino where he absorbed the “infectious passion” of the place. “Everyone there had this mindset, ‘We’re going to change the world,’ ” he’d later say."

"The article went viral, and after conducting an audit, Apple acknowledged that more than a third of workers exceeded its maximum workweek of sixty hours. Within a month Cupertino established a Supplier Responsibility team, vowing to improve conditions and hold vendors to account. This cat-and-mouse pattern—of the media finding problems in the supply chain and Apple pledging to do better—would be replicated over and again in the decade plus to follow. The periodic exposés helped to shine a light on working conditions and likely caused some positive change. But the media’s forays into what Apple was up to overlooked wider questions of company strategy, business development, and the management of product cycles. In histories of Apple, both in articles and books, China usually enters the conversation to explain the company’s problems, not its successes. But an early exception emerged in a wonky report on supply chain efficiency that came out just before the iPhone went on sale."

"Speaking to Cupertino, Ford struggled to convey just how powerful the demand was. One time, when he told an Apple executive visiting Beijing that he needed such and such number of iPhones, the executive looked incredulous. “You’re asking for a quarter of the entire planet’s supply of iPhones!” Ford looked back at the executive. “Yes! Welcome to China!”"

"He tried to sound the alarm in Cupertino, but he had little influence or clout. The company was racking up record sales. Whatever problems Xi had expressed when he first entered office had—apparently—been solved. So when Guthrie would show up in Cupertino trying to deliver the message that Xi Jinping was taking China back to the 1990s—an era of “technology transfer” when accessing the Chinese market also meant handing over secrets to a local joint venture partner—he was easy to ignore."

"Besides, Mahe wasn’t a threat to anybody. Cupertino concluded it was best just to leave her in a cushy role. When she tried to establish a media presence for herself, she wasn’t allowed to, so she sought out other work to create her image in other ways. She joined the board of Starbucks in 2019 and Lululemon in 2022, and now serves as a governor of the China division of the American Chamber of Commerce. To outsiders, these positions have made her look like a rock star. *Fortune* has repeatedly named Mahe to its “Most Powerful Women” lists. And in the rare instances she’s mentioned in the media, reporters make the natural assumption that Apple’s success in China is somehow reflective of her leadership. The company’s secretive, insular culture has masked the reality that she’s been playing a largely ceremonial role."

"If Cupertino was looking for signs that this new plan was working, all they had to do was tune in to China Central Television—the state broadcaster that had laid into Apple for its warranty deficiencies. “Apple had no investment strategy in China before. Its strategy used to be ‘sell products only and invest nothing,’ ” an analyst said on CCTV. “Its investment now may not necessarily reverse its downtrend for good, but it may contribute to formulating a layout for the next growth engine.”"

"In the end, Mac Pros were indeed shipped from Texas, and Apple made a snazzy video demonstrating the processes—scoring whatever political points it could. But the project made it only because Apple leveraged relationships with suppliers in the one country where it knew the talent existed. “We flew people from China to get it fixed,” one of the engineers says. “People working for Foxconn.” The irony is hard to overstate. After more than a decade of sending its top engineers to China, to train staff on how to build things at Apple quality, Cupertino needed to fly Chinese engineers into America’s heartland to complete the project. Apple had closed its American factories only a decade earlier, but as one of the engineers put it, “It was a very formative decade.”"

"Still, Cupertino wanted to send engineers to China and offered bonuses between $500 and $1,000 a day for people to go. But flights had been dramatically reduced. United halted nonstop flights from San Francisco to Shanghai from March to October 2020. So Apple scrambled the jets. In the spring, Cupertino began sending engineers to Shanghai on private planes departing from San Jose, with a pit stop in Alaska. “Each jet could hold thirteen people, but we only sat six,” says a person familiar with the flights. “We wanted room and, you know, we’re Apple.”"

"The Apple CEO’s visit was a stroke of brilliance on the part of Wang, described in the puff piece as someone who knows “the various Apple products like the back of her hand.” What she understood is that profits from the deal hardly mattered relative to the public prestige of working with Apple. Cupertino has long been famously secretive about its supply chain operations; companies can face penalties for even mentioning that they make goods for the tech giant. But Cupertino’s desire to enhance its narrative in China presented an opportunity. Wang orchestrated an event that elevated the perception of Luxshare from “one of many suppliers” to a real partner. As the website article proclaimed: “Birds of a feather flock together.”"

"As Cupertino attempts to diversify to India for manufacturing, TSMC is in the process of diversifying chip fabrication to the United States, with direct aid from Washington. In May 2020, TSMC announced a major investment to build an advanced semiconductor fabrication facility, or fab, in Phoenix, Arizona, and by 2024 the plans had expanded to include three new fabs for a total cost of more than $65 billion, underscoring pressure from its customers and the seriousness of Washington’s efforts. The three fabs will be the “largest foreign direct investments in a greenfield project in US history,” TSMC says. However, amid reports of culture clashes and a shortage of American talent to fill 6,000 planned roles, the start of production was delayed by a year to early 2025."

"The problem was, shareholder-first capitalism enabled—indeed, even encouraged—corporations to ignore, if not undermine, the national interest. Executives found that they could focus on actions to reap short-term benefits—gambits such as cutting costs and outsourcing jobs to Asia—and ignore wider societal impact. As this book has demonstrated, Cupertino’s interests have significantly diverged from Washington’s since the death of Steve Jobs; the wider implications could end up tarnishing Cook’s legacy."

"Even Xi Jinping, who seeks to annex Taiwan and has little reason to flatter its citizens, has acknowledged that China’s forty years of opening and reform “has to be chalked up to our Taiwan compatriots and Taiwan companies.” Taipei calculates that between 1991 and 2022, total business investment from the corporate sector exceeded $203 billion, a huge number by any standard—barring Cupertino’s."

"Strange Folks Came Along “Can we book the whole place for dinner on November 8th?” This was the call I received from Apple’s representative, some time in the fall of 2006. On that day, Apple was scheduled to hold a board meeting at their headquarters in Cupertino, California. They wanted to host a dinner for directors and executive employees in the evening and were inquiring if they could use “Keizuki” as the venue. By that time, Apple’s CEO, Steve Jobs, had started visiting Keizuki regularly. However, I had never consulted with Steve directly about the board dinner."