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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.”
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