An Apple manager is due in federal court Aug. 16, after his arrest last week for allegedly accepting $1 million in kickbacks from some of the company's Asian suppliers.
Paul Shin Devine, a global supply manager for Apple, was arrested Aug. 13 and charged with more than 23 counts related to the alleged kickback scheme, including wire fraud and money laundering. A Singapore-based employee of an Apple supplier, Andrew Ang, was also named in the federal grand jury indictment.
"Apple is committed to the highest ethical standards in the way we do business," a company spokesperson wrote in a widely circulated statement. "We have zero tolerance for dishonest behavior inside or outside the company." Both Apple and federal investigators suggest the kickbacks continued for at least three years.
Devine offered six unnamed Asian suppliers confidential information on Apple's purchasing plans for product components, in exchange for a variety of bribes and kickbacks filtered through a network of U.S. and offshore bank accounts, according to the indictment. Those suppliers then used that information as leverage in negotiations with Apple.
According to a San Jose Mercury News article updated Aug. 15, the FBI and IRS collaborated on the investigation; Devine is currently in the custody of the U.S. Marshals Service, while Ang's location is unknown.
Apple's recent sales success makes it a golden goose for components suppliers. The company sold 3.27 million iPads in the third fiscal quarter of 2010, along with 3.47 million Macs, 8.4 million iPhones and 9.41 million iPods. That contributed mightily to Apple's total revenues of $15.7 billion and net quarterly profit of $3.25 billion.
"The key to continuing success will be how quickly Apple responds to issues as they arise and whether the company can align suppliers to meet demand needs," Rhonda Alexander, director of monitor research for analysis firm iSuppli, wrote in a July 20 research note. "Apple's acceleration of its component demand indicates that the company has raised its iPad production target for 2010."
That level of demand has also pressured certain suppliers' production channels. According to LG Display CEO Kwon Young-soo, for example, the sales craze for the iPad has strained the company's inventory.
"Demand keeps growing and we can't meet it all. Apple may have to delay launches of the iPad for some countries due to tight component supplies and strong demand," Kwon Young-soo told reporters from Reuters and other media outlets July 22. "We are considering increasing production lines for iPad products but overall supply is likely to remain tight until early next year."
The iPad and other devices could lead Apple to spend $16.2 billion on OEM semiconductors in 2011, according to recent estimates by iSuppli, enough to place it second behind Hewlett-Packard.
The Devine case is being heard in U.S. District Court, Northern District of California (San Jose).