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Originally published Sunday, October 7, 2012 at 8:00 PM

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Nimble Taiwan suppliers power Apple’s success

While the Cupertino, Calif.-based company outsources component production to numerous corners of the globe, Taiwan is at the center of the Apple manufacturing ecosystem.

San Jose Mercury News

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BADE, Taiwan — On a November afternoon two years ago, a taxi pulled up to the gate of Ta Liang Technology, one of countless nondescript companies that make up the global gadget-supply chain.

Sitting in the back seat was an American wearing a T-shirt, shorts, sandals and carrying a backpack, looking like a tourist who took a wrong turn in this town south of Taipei that has few English speakers. But the passenger’s business card needed no translation: Supply Base Engineer, Asia Procurement Operations — Apple.

The unscheduled visit, a glimpse of Apple’s global supply chain in motion, set off a scramble.

Within minutes, the Apple rep was sipping coffee with Ta Liang’s chairman and other executives, who were presented with a technological challenge that could lead to a sizable contract.

Apple’s massive supply chain is what enabled the record-breaking rollout of the iPhone 5 last month; more than 5 million units were sold by the end of its first weekend.

While the Cupertino, Calif.-based company outsources component production to numerous corners of the globe, Taiwan is at the center of the Apple manufacturing ecosystem.

The island is packed with aggressive and nimble companies vying to provide under-the-cover but critical technology that ensures that Apple’s latest gadgets arrive on the global stage by the millions at Apple’s command.

And Taiwan’s importance is apt to grow if Apple shifts the production of its iPhone chips from Samsung, with whom Apple is engaged in a patent war, to Hsinchu-based Taiwan Semiconductor Manufacturing, which industry insiders here think will happen soon.

“Apple’s supply network is perhaps the most sophisticated in the world,” said Creative Strategies President Tim Bajarin. Many people have heard of Taiwan-based Foxconn, whose factories across China employ more than a million workers to assemble everything from MacBooks to iPads.

But it is off-the-radar-screen companies like Ta Liang that Apple consistently relies on to figure out hard-to-solve production problems on tight deadlines.

Revenue source

A contract with Apple can send a supplier’s stock share soaring — or even represent most of its revenue.

But working with Apple is not easy. Its engineers are uncompromising, and it imposes a code of silence enforced with financial penalties for product leaks.

And its history of cutting suppliers in a heartbeat helps create a “love-hate relationship” between Apple and the companies that build its products, said Stephen Su, general director of Taiwan’s Industrial Technology Research Institute, who used to work for a company that supplies camera modules for iPhones, iPads and MacBooks.

“Apple does not co-invest in a new technology with a supplier,” he said. “And they are not patient. ‘Can you do it? If not, I will go to another supplier.’ ”

Still, when the world’s undisputed leader in consumer technology comes calling, company executives often order their engineers to work around the clock.

Challenging specs

Initially, Ta Liang executives were aghast at Apple’s specifications. They were handed flexible, folding panels made of fiberglass and told to make them without the slightest rough edge or blemish — even though consumers would not see them because they would be covered with another material.

“That made it almost impossible,” recalled Jerry Chen, president of the 325-employee-company. A week later, however, Chen invited the Apple rep back for the proud unveiling of a machine that had been configured to seamlessly make the cuts Apple wanted.

“He used his hand to check out the cut. ‘Oh, wonderful!’ Chen said.”

Apple ordered 21 machines from Ta Liang to produce the world’s first iPad covers.

“It wasn’t until after Steve Jobs announced it that I saw what it was for,” Chen said.

Apple’s willingness to cut suppliers loose on a moment’s notice could ultimately damage the company’s global supply chain should it lose its competitive edge, Su said.

If that were to happen, many suppliers might first line up behind other companies with whom they have enjoyed long-term relationships, potentially making it more difficult for Apple to find partners, he said.

For now, though, Apple calls the shots. And suppliers willingly follow.

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