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RUSH: I need some help from you people, you tech experts in the audience, because I’m at my wits’ end. I’ve asked I don’t know how many people, and there’s nobody that has the answer to my question. Nobody! Now, I haven’t been able to get to the people who do have the answer that would be at Apple.

I don’t know who to call at Apple. I don’t know how to get an answer. I don’t know where I would go if I called Apple. I don’t know who I would ask for and I doubt anybody would pick up the phone. But here’s the question. Apple makes — when they’re at peak production on the assembly line — 500,000 iPhones a day. Yeah, in a 24-hour day, they can make 500,000 iPhones.

That means in a quarter they can make 45 million phones, if they’ve got the guts, if they’ve got all the equipment that is needed to make a phone, if they’ve got enough supply in the supply chain, but that’s the peak. They’ve got two phones coming Friday. They’ve been in production, one of them since July, and it’s questionable when the larger (the 5-1/2-inch phone) got started in mass production.

It’s rumored that it’s in shorter supply than the 4.7-inch phone. Anyway, when they started manufacturing these phones — and there are millions already made and boxed up. There are millions that are made. They’re boxed. They’re in cellophane. However, the operating system is still not ready… Well, it will be tomorrow. Wednesday. The operating system, the new iOS 8 is going to be released to the public on Wednesday.

My question’s very simple: When you’ve got millions of phones already manufactured while your operating system is still in beta, how do they get the new operating system on millions of new phones that are already finished (the manufacturing process) and are boxed up in a warehouse and all shrink-wrapped? How in the world is that done?

I have asked for years I don’t know how many people, and the best answer is, “Well, it’s mass Wi-Fi.” No, it can’t be Wi-Fi. There’s no way to guarantee that Wi-Fi on millions of phones transfer the operating system, and when you get your phone and open it and start it up, it better work. You can’t have an operating system that’s not properly installed.

I’ve even said, “Okay, is all this beta release of the software a joke, and have they actually finished the final product back in June or July and it’s ready all the way back then, and they put it on the phones on the chip when it’s manufactured?” Because if it’s not — if the operating system really doesn’t finish its beta-testing period until late August — how do they get the new iOS 8 on millions of phones that are already made and boxed up in a warehouse ready for sale?

Now, I know how they mass produce CDs and DVDs. If you have a home recorder, and you want to dub a DVD, you burn it. What can it take, an hour, depending on what you’re putting on a DVD? Well, they can’t do that. They mass produce ’em. They stamp ’em. They just run ’em through a stamper, just like used to make vinyl records. Stamp the damn things lickety-split and go through. But how can you do that with a phone?

Nobody that I’ve talked to — and I’ve talked to some wizards. You know, nobody’s even thought about it. That’s how weird I am. Nobody’s even thought to ask. I even asked Snerdley. I figured if anybody would know something as obscure as this, Snerdley would know of it, and he had never thought of it. He had never pondered it. (interruption) Now Snerdley says it’s a brilliant question.

I don’t think anybody cares. This is the thing. They just use it. They get the phone, they open it up, and everybody is all excited. On Friday they turn it on, and… In fact, I’ve got a publication called How It Works. I looked at How It Works. I can’t even get close in a search term so How It Works even understands what I’m asking. I’ve Googled. I’ve Wikipediaed.

I’ve done everything I can think of. I know how to structure search terms on the Internet. I cannot even get an answer that’s even close to what I’m asking. Nobody knows. But there has to be a way to get the new operating system on gazillions of phones in a very, very short period of time. ‘Cause those phones are made while the operating system isn’t ready to go yet. It’s still in beta testing.

Okay, that’s that.


RUSH: We have a guy here from Brenham, Texas, named James who thinks he’s got an answer to the question I asked in the first section of the program. Hi, James. I’m glad you waited.

CALLER: Hi, Rush, and 1992 dittos.

RUSH: I appreciate that. Thank you.

CALLER: Yeah, the question you asked about the iPhone is — and the answer is they don’t keep them in warehouses like you were, you know, positing there. You’ve heard of Just-In-Time Inventory? That’s kind of what they do. That’s kind of Tim Cook’s thing. He doesn’t keep a lot of inventory sitting around. So when the new OS is ready to go, they may have a couple of days in the pipeline, but as soon as that thing’s ready to go it’s in production. So there’s only a couple-of-day lag.

RUSH: Well, now but here’s… I understand that after things get up and running and the original demand has been met. But they have ordered 80 million iPhones to be manufactured between now and the end of the year. That is a given. They started manufacturing one of these two new ones in July. They know that last year, in the first weekend, they sold nine million phones. They had to be able to hand deliver — either at their stores or via FedEx — nine million phones.

They didn’t make those nine million phones in one week, before they were sold. They were made, and they were stocked someplace. They have to get a head start if they’re gonna be able to meet demand on opening weekend. So they started in July. Now, maybe they don’t put the phones in boxes and wrap ’em up. Maybe the phones are kept until one week before shipping them out of China. Maybe that’s where you’re right.

CALLER: Well, you know, when you buy… Any time they release a new phone… For instance, that’s why there’s a lag between the announcement and when they’re actually shipping. I don’t know when the actual gold master of the new OS was finished, but, you know, they’re working around the clock over there. You know, and if you’ve ever ordered a brand-new iPhone –which I know you have — they FedEx it to you directly from China.

RUSH: Right.

CALLER: So it’s happening almost in real time. They’re churning ’em out as fast as they can.

RUSH: I know. They can make 500,000 a day.


RUSH: Let me restate the question for people just tuning in. They’ve got, on opening weekend… Look, they sold this past weekend, just in pre-orders, four million phones that are gonna be ship starting… Well, probably now. They’re gonna be delivered Friday, four million phones. Those four million have to be somewhere. And those four million phones were made. They can’t make four million phones this week.

So those phones have to be somewhere without an operating system on them. Somehow they’ve got to get the OS on those phones that are already made before they ship them. And my question is, how do they do it? It’s a physical nightmare to me. They can’t plug every phone into a computer and transfer the OS. So do they do it with Wi-Fi?

Do they have hundreds of thousands of phones in the warehouse before they put ’em in boxes and transfer the OS, the “gold master,” which was released publicly last…? Well, it’ll be public Wednesday, but last Tuesday it actually was in the wild. It was given to developers. So it’s probably finished a week before that, maybe even earlier.

But my point is, from this point on, the OS will be part of the manufacturing process, but it isn’t part of the manufacturing process for the first number of millions of phones. And for those phones, I’m just wondering how they get the OS on them en masse, after they’ve made everybody else. It’s gotta be Wi-Fi. It’s gotta be Wi-Fi in their warehouse before they ship them. I don’t know how else to do it.

CALLER: I don’t know. The only thing I can think of is that that’s why supply is so constrained on these new phones whenever they’re first coming in. You know, the stores, the Apple Stores still only get a box or so a day for the first two or three weeks.

RUSH: Right.

CALLER: That’s gotta be why. You know, they’re trying to catch up.

RUSH: I don’t think it’s… That’s a good thought, but I don’t think it’s the operating system that causes a supply problem. I think the supply problem… I don’t want to get too in the weeds here on this. This is stuff people really don’t care about. But the supply problem is subject just to rumors. Nobody really knows why they can’t meet demand on opening week. I don’t think it’s the opening.

I don’t think it’s the operating system. (interruption) Four million US. Ah, four million worldwide. I forget. I think it’s… No, it was the UK, wasn’t worldwide. There were only a few countries you could order in advance and then like 24 other new countries get added in, so they’ve gotta do stock for every country they introduce the phone in. Even if it’s just 10 phones for that country, they’ve gotta have them.

But to me this is just a tech question. It’s not a manufacturing question, it’s a tech question: How do they get the OS on millions of phones at one time in a week before they ship them out? Now, after this initial weekend, yeah. They’ll put the OS on as manufactured. My point is they are building and finishing phones before the OS is finalized.

So how do they get the final finished OS that they’re gonna release on those phones made before the OS of us finished, and it has to be in the millions. I guess Wi-Fi in their warehouse is the only way. My problem is, I don’t know how you verify that it was correctly transferred and installed, because if you… I mean, I’ve never bought a phone that didn’t turn on when I bought it. It’s always worked.

There hasn’t been a bug in the OS. Maybe it has for some people. Anyway, James, I appreciate your trying to answer my question. I can tell by his answer I may not be actually expressing my question in the right way. But I’ll tell you this much about Apple’s inventory: This is stunning. He is right about their CEO, Tim Cook.

When he was the operations director… I mean, this, as a business proposition, fascinates me. Do you know that Apple…? Get this, now. Aside from opening weekend of the phone, which is a unique period — but after that is out of the way– just in a normal week at Apple, they turn over their entire inventory every three to four days. That’s how little inventory they have.

Now, to pull that off and to make sure that when somebody walks into a store and wants something it’s there, and they’re turning that inventory, and everything’s manufactured in China (except for the Mac Pro which is made in Austin, Texas). But only three to four-day inventory. That’s the envy of businesses all over the world. Inventory is death! Unsold product is death to the bottom line.

Three to four-day inventory that they turn over! We tried to do that with Two If By Tea. It’s not possible. You have to manufacture so much in advance, so many different flavors. You’ve gotta be able to have this and that when people want it. I’m stunned just in my little experiment with my little tea company here, in inventory, to understand. iPhones, iPods, iPod Touches, iPad, iPad Minis, laptops, desktops. Everything they turn over three to four days. Stunning.


RUSH: Jonathan in Fort Wayne, Indiana, wants to weigh in on the question. How are you doing, Jonathan?

CALLER: Good. How you doing, Rush?

RUSH: I’m fine. I’m actually doing quite well. It’s a big week.

CALLER: Hey, my wife is a big fan of yours. She’s been listening to you since she was six years old. So naturally she got me into you, too. (chuckles)

RUSH: Well, God bless her. What’s her name?

CALLER: Sophia.

RUSH: Sophia! One of my all-time top ten favorite female names to boot. How about that?

CALLER: Yeah, it’s one of most popular female names nowadays. Funny. It seems to be coming back.

RUSH: Well, cool. All right, so you have an answer for me on how Apple gets the OS on phones that are already made?

CALLER: Yeah. I can take a shot at it. I used to work at an electronics manufacturer here in town, BAE Systems. They make airplane engine controls and also flight controls for boat wings. So I think I’ve got a little bit of an inside, and I also used to work in the sourcing department. So I used to have to deal with manufacturing parts and schedules. So I can definitely take a stab at what your question is.

RUSH: Well, what is it?

CALLER: Oh, the answer?

RUSH: Yeah, what’s the answer? (chuckling)

CALLER: Well, my guess, just being engineer and seeing how it’s been done, a lot of times the gold masters you were saying is most likely internally finalized by Apple probably about a month ago, and they probably send that over to the solderer or wherever is putting the phones together to burn onto the chips for the iPhone, or phones. So they probably have been just putting that in the phones to get ahead for the pre-orders. And the software that’s actually on the chips is probably not the finalized version, either. It probably has some —

RUSH: Okay. So they put a beta on just to have something in the original manufactured product. They put a beta of the software; then they update it right before they ship it. Okay. That’s an interesting theory, but it still doesn’t answer my question. This is where I think I’m failing as a communicator. Let me try it this way.

In my quest to answer my question, I found a Bloomberg article on September 11th last year. Let me read the relevant portion to you. “The handsets remain in China while Apple’s software team at headquarters finishes work on the iOS software that runs on the device, said a former Apple manager who declined to be named because the process is private. Once a final version is finished, the software is loaded on the phones.”

And then it says, “Before Apple’s formal unveiling on stage, iPhones are shipped to distribution centers around the world, including Australia, China, the Czech Republic, Japan, Singapore, the UK and the US, said one of the people with knowledge of the matter.” All right, so we know they manufactured the phones — millions of them, folks — before the operating system is finished. So here’s my question.

You’ve got a million iPhones — and if you don’t like iPhones, you’ve got a million Galaxy S5s. I don’t care what the phone is. You’ve got a million phones that are manufactured. They don’t have an operating system on ’em yet because it isn’t finished. This is only at the rollout. This is not relevant three months from now, or next week it won’t be relevant. They’ll be able to put the OS on every phone as it’s made because the OS is finished.

When they start manufacturing in July and August to have millions of these things to roll out on opening weekend, there is no operating system ready to go. So you’ve got millions of phones warehoused. Now, the best guess I’ve gotten lately is they’re not in boxes yet; they’re warehoused, and they are waiting for the OS to be finished, so you got millions of them — and if you don’t like that, hundreds of thousands. I don’t care.

You’ve got hundreds of thousands of phones, every aspect of them ready to go except no operating system. Then the operating system is finished, it’s declared golden master, and it’s time to get the operating system on a million, five million, 10 million phones. My question is: How is that done in bulk?

When your assembly line’s running, the chip that goes on or in the printed circuit board on the motherboard, the chip will already have the OS loaded when the assembly line puts that phone together. But at the stage I’m talking about, the OS isn’t finished. So you got hundreds of thousands, millions of phones. They’re sitting in a warehouse; then the OS is finished. Do they do it with Wi-Fi over the air?

Now, this Wednesday, for those of you that have an iPhone, iOS 8’s gonna be released over the air. You’ll go to the System Settings, to Software Update, and it’ll be there. And it’ll take 20 minutes for your phone to do it, download it, install it, verify it, restart, and then you get the setup screen, and you put in your Apple ID or whatever is necessary and you’re off and running. Now, they do that at the same time on a million phones via Wi-Fi in the warehouse?

Do they do it after the phones are shipped out of China at distribution centers? I don’t know. I’m just curious about how they get an operating system, in bulk, on millions of phones sitting in the corner over there. They can’t connect ’em all. Not possible. And, so far, nobody… The best guess is Wi-Fi. Hundreds of thousands, millions, Wi-Fi. It doesn’t matter to anything.

It’s just one of these questions I’ve always had that I can’t find an answer to. Everybody says, “Well, Rush they build a phone, and they finish the operating system, and they put the system on it.” I know. I just… How does that happen? What kind of Wi-Fi system must they have that doesn’t get bogged down when millions of devices are accessing, or do they stagger it?

They must. There has to be a simple explanation for this, and I’m sorry that I care. (chuckling) But there are so many of you out there, I’m rolling the dice that somebody in this audience will know, and I’m hoping that whoever it is that knows will get lucky and will be able to get through here and explain it.

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