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The Shadowy World of iPhone Cases

 
Smartphone case makers rely on rumors and leaks to get their
products on the market first

By Douglas MacMillan and Adam Satariano
     Oct. 13 (Bloomberg BusinessWeek) -- In the weeks leading up
to Apple’s Oct. 4 announcement about the new iPhone 4S, Tim
Hickman lived and breathed rumors about the device. His company,
Hard Candy Cases, makes protective covers for mobile phones, and
he was determined to get a jump on production. After three
separate manufacturing partners in China sent him detailed 3D
models of an iPhone with a widened, pill-shaped “home” button and
a slightly tapered back, Hickman decided to roll the dice. He
paid $50,000 to make steel moldings to mass-produce cases for the
new design and, on the morning of Apple’s announcement, began
taking orders on his website. The gamble backfired: Apple’s new
iPhone 4S included no major changes to the exterior design. The
home button remained circular. Hickman suddenly owned $50,000
worth of paperweights.
     As smartphones proliferate—Apple booked more than a million
4S preorders in a single day, compared with 600,000 for the
iPhone 4—the business of making shells to protect and decorate
them is booming. Consumers spent more than $436 million on
mobile-phone cases in the 12 months ending in August, a jump of
33 percent from the same period a year earlier, according to
researcher NPD Group. With the secretive Cupertino (Calif.)
iPhone maker unwilling to share specifications in advance, case
companies rely on rumors, factory leaks, and other guesswork to
approximate new designs before they’re revealed. “If you have a
good sense that you have the right measurements and plans, then
you can ramp up production,” says Karl Jacob, chief executive
officer of case maker Coveroo, who says he does not use leaked
designs. If a company guesses right, then “while these other guys
are waiting in line, you already have 100,000 units on the way
from China,” he says. But a wrong guess means “risking millions
of dollars to create inventory that could be worthless.”
     In Hickman’s case, the cost won’t be that high. His
investment in the steel molding is for naught, and he had to
cancel more than $50,000 in preorders. But he surmises that his
prep work could ultimately pay off, and that the erroneous design
he bet on might turn up in a future Apple announcement. “The data
we got came from somewhere,” he says.
     Betting boldly has given Hard Candy an edge before. When a
new iPod touch was released in September 2010, the company had
cases on sale the week after its release, which was possible only
because overseas manufacturing partners leaked designs months in
advance. The payoff can be significant: Most of Hard Candy’s
cases cost at least $30, and gross margins average roughly
60 percent to 65 percent, according to Hickman. He expects annual
revenues to pass $50 million by 2013.
     Hickman says he doesn’t pay for the specs. Factories in
Shenzhen and Guangzhou provide them in hopes of getting his
business. He declines to name his Asian partners but says they
are the same factories that supply his competitors, including
Case-Mate, Speck Products, and Incase. Speck and Incase deny
using leaked designs. Case-Mate declined to comment, but in
mid-September posted pictures online of new cases for a slimmer
iPhone, similar to the prototypes from Hard Candy. It removed the
images from its website after they were noticed by a technology
blog. Using leaks from Asia “pisses Apple off,” says Hickman,
whose products aren’t sold in the iPhone maker’s retail stores.
“But it is what it is.”
     More conservative case makers say they wait for official
details. “It’s much more important to get it right than to get it
there first,” says Dave Gatto, CEO of Incase. On the morning of
Apple’s Oct. 4 announcement, top managers at Palo Alto startup
Speck huddled into a conference room filled with colorful
MacBooks to watch the news trickle in. They had created several
rough models of potential new designs for the next iPhone, but
were far from committing to any of them. “We have no idea what’s
going to hit the market,” says Irene Baran, Speck’s CEO. “We
listen to the rumors like everyone else does and make intelligent
guesses.” The company’s executives know Hickman, who worked at
Speck before leaving in 2006 to start rival Hard Candy. “He’s
known to take risky moves,” says Rusty Everett, executive
vice-president of sales. “If I was one of his investors, I’d be
nervous.”
     At Speck, Apple’s unveiling was met with sighs of relief.
The new iPhone 4S will fit into all existing cases for the iPhone
4, meaning thousands of cases that could have gone unsold can be
marketed to buyers of the new phone by slapping a different
sticker on the box. Nonetheless, the startup plans to send
someone to wait in line to buy the iPhone 4S when it’s released
on Oct. 14 and test its compatibility. The company is also
premiering cases with new color palettes, textures, and other
features in conjunction with the updated iPhone, and Speck
intends to have its new products on retail shelves less than a
week after the 4S release, says Baran. “We shave off a couple
days a year,” she says.
     Trends in case design can be influenced by more than just
new hardware, of course. When Apple introduced its
videoconferencing app FaceTime last year, many users found it
awkward holding the phone in front of their faces to make video
calls. That led Speck and others to build cases with “kickstands”
that prop the phones up at an angle appropriate for video
chatting. As for software upgrades that gave Speck’s designers
the most ideas on Oct. 4, Apple’s new Siri topped the list. The
voice control feature may cause people to start thinking of their
phones more as personal assistants, causing one product manager
to quip, “We should build a case with legs to let the iPhone
follow you around.”

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