Apple, Inc. Has Made Incredible Progress Plugging Supply-Chain Leaks

Stolen product enclosures are down 99% over two years.

Evan Niu
Evan Niu, CFA
Jun 21, 2017 at 9:00AM
Technology and Telecom

So much of the Apple (NASDAQ:AAPL) rumor mill fundamentally relies on supply-chain leaks. The good news (for Apple as a company) and bad news (for those that professionally cover Apple like myself) is that Apple has made incredible progress in plugging those leaks. In fact, the Mac maker has done such a good job cracking down globally that more leaks now originate within the U.S. at Apple's campuses in California.

The Outline has obtained an audio recording of an internal presentation given this month by Director of Global Security David Rice and a few colleagues. There are a lot of interesting tidbits regarding the steps that Apple has taken, as well as the sheer magnitude of its security operations.

A worker performing a quality inspection on an iPhone

A supplier employee performing a quality inspection on an iPhone. Image source: Apple.

Apple screens more people than the TSA

It's fairly common knowledge that Apple employs small armies of workers via its contract manufacturing partners, and there's been extensive coverage over the years of some of these campuses. One iPhone manufacturing hub in China is even referred to as "iPhone City." But few consumers or investors have given much thought to the subsequent implications in terms of the security requirements. Apple screens 2.7 million workers per day entering and exiting manufacturing facilities across 40 factories, according to Rice. That's more than the Transportation Security Administration, which Rice estimates at 1.8 million passengers per day (the TSA's official 2016 stats said it screened over 2 million passengers per day last year).

Despite that scale, Apple has reduced the number of stolen product enclosures -- the chassis that represents a product's overall design -- by 99% over the course of two years.


Enclosures Stolen







Data source: The Outline.

Apple made 65 million enclosures last year, so only losing four is a huge accomplishment.

There's a lot of money in leaking

Just about everyone wants to know what Apple has up its sleeve, including consumers, investors, competitors, and counterfeiters, among others. That sprawling interest means that smuggled parts can fetch high prices in black or gray markets. The average assembly worker at Pegatron (one of Apple's contract manufacturers) earns just $213 per month after expenses and before overtime, according to China Labor Watch, a non-profit industry watchdog. China Labor Watch also estimates that workers spend an hour every day passing through screening checkpoints.

It's no wonder, then, that many workers are tempted by the prospect of an easy payday. If they can successfully smuggle out a product enclosure or a revealing component, they can earn anywhere from three months' to a year's worth of income.

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Apple's more concerned about domestic leaks now

Rice also points out that Apple has made so much progress with security abroad that the company's focus is now shifting home. In 2016, there were more leaks originating from Apple campuses than from the supply chain. That could mean that Apple's security procedures could tighten up even further -- as if they weren't stringent enough already.