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Apple Explores Making iPhones in the US, Finds 'the Cost Will More Than Double': Nikkei (nikkei.com)
Apple is exploring the idea of making iPhones in the United States. But the company has realized that it will cost more than double to make the shiny new gadgets at home, according to a report on Japan-based outlet Nikkei. From the report:Key Apple assembler Hon Hai Precision Industry, also known as Foxconn Technology Group, has been studying the possibility of moving iPhone production to the U.S., sources told the Nikkei Asian Review. "Apple asked both Foxconn and Pegatron, the two iPhone assemblers, in June to look into making iPhones in the U.S.," a source said. "Foxconn complied, while Pegatron declined to formulate such a plan due to cost concerns." Foxconn, based in the gritty, industrial Tucheng district in suburban Taipei, and its smaller Taiwanese rival churn out more than 200 million iPhones annually from their massive Chinese campuses. Another source said that while Foxconn had been working on the request from Apple Inc., its biggest customer that accounts for more than 50% of its sales, Chairman Terry Gou had been less enthusiastic due to an inevitable rise in production costs. "Making iPhones in the U.S. means the cost will more than double," the source said.
So they would make $300+ per iphone rather than $500+ per iphone. It's still over a 100% markup, so I fail to see much of a problem.
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Apple looks into making the phones in the US and their answer is to ask the Chinese company they're currently using, who has no interest in making them in the US, how well that would work? And surprise surprise, they came back with, "sorry, costs too much, you should keep making them here where we already have our facilities." I'm shocked, SHOCKED!
How about investigate US-based companies? How about an investment group who might be able to put together a group who could find a way to do it more cheaply here?
This is an Apple story. That would be the option-Constitution.
According to this article. The $649 iPhone 7 costs around $220 to make meaning that Apple gets roughly around $400 in profit.
That assumes that Apple has $0 development costs, $0 shipping costs, $0 distribution costs, $0 marketing costs, they have $0 related to sales, $0 costs due to keeping an adequate inventory of iPhones on hand to supply distributors and of course there is $0 wastage (theft, etc.). Also, because we all know iPhones never break down, Apple has $0 costs related to returns and warranty repairs. Methinks that the your formula:
retail price - manufacturing costs = Apples profit per iPhone sold
...does not quite hold water
Apple is selling at monopoly prices.
And yet, I - like most smart phone owners - have an Android phone that cost less than $200. There is no monopoly here, only a company that has a happy and loyal customer base.
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This is just starting some per-emptive whining because Trump has mentioned that he's going to make Apple manufacture in the USA.
I'm not sure how he thinks he can legally do that. A better solution would to to make Apple pay its taxes.
Right. And that could come in the form of a special tariff. I'm told the cost to make an iPhone is around $178. So add a $178 tariff to each one, and it makes the choice very easy for Apple. They can either start making them in the US, providing jobs to Americans that can then more easily afford an iPhone, or keep making them in China where pollution controls are very low and worker protections are even lower.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
The thing about moving it to the US isn't about labor cost. It's about the loss of the giant manufacturing supply chain that only exists in China.
If you want to make *anything* here in the U.S. you either wait months for some mom-and-pop shop to custom-make a mold or glass panel for you. Or you call up a Chinese manufacturer, send them a drawing and have 100k parts ready in about 2 days.
Just getting a printed-circuit board made in the U.S. costs ~20k for some PCB contractor and around 2 weeks for a prototype. There are shops in China you can send a schematic to that can send you 100k boards ready for production in 2 weeks for ~5-10k. Hell, if you want they can even take it the rest of the way and assemble the entire product for you.
You won't find *any* place in the U.S. to do that for you. Even if you're willing to pay money for it.
China ain't gonna just stand buy and let all their hard work go down the drain. Expect a fight.
We are already in a "fight". The proposals are merely about "fighting back" rather than just "taking it". For example see China adopting US and EU made jet engines but require technology transfer and manufacture in China, while simultaneously planning to switch to domestic jet engine companies in a decade after the necessary expertise is accumulated. If Chinese markets were to become more open to US goods and services (including forgoing the requirement of domestic partnerships), IP was better protected, and a rule of law more fairly applied (see Fellows paper shredder case) then its unlikely factories in China would be a "big" issue.
Apple tried to manufacture the iPhone in the US initially. The reason they didn't wasn't wages - in highly automated mass production, wages are a tiny percentage of cost of goods. The "deal breaker" was that the US didn't have enough industrial engineers to manage the production lines. Apple would have had to hire 100% of the new graduates from all US universities for 3 years to have enough engineering management to run the lines. The secondary issue is supply lines. All of the suppliers manufacture in or near Foxconn in China, so they can iterate on designs in hours, rather than weeks (shipping). So, to be in market years earlier, and with maximum agility, Apple had to be in China. Manufacturing on a large scale in the US was killed long before the iPhone launched.
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Most companies (Apple and Microsoft being notable exceptions) have narrow or unstable margins (and even Microsoft has a cycle of loss years and profit years). The average profit margin in U.S. in total is 10%; 90% of income goes to wages.
All wages are paid from revenues; revenues are paid from sales; and sales are paid from income. Making a product requires labor from many people, fractioned together. If you have 100 people at $10/hr making 1,000 widgets per hour, that widget costs $1, and can have a price no lower than $1. Each of those people, in that 1 hour, makes enough money to buy 10 such widgets.
In one sense, those people are trading widgets for other widgets (or food). In another sense, they're trading labor for labor (time). When you make $20/hr, you're essentially trading 1 hour of your time for 2 hours of theirs.
That means money is kind of a closed system. There's a limited amount of income in any time frame, which determines what can be bought and what jobs can exist at that technology level. When you add in trade, you're moving income between isolated trading partners, which works the same way. Central banks can issue more money, allowing banks to give loans, allowing consumers to spend more, which adds money to the system; however, this counters technical progress (which causes deflation) and enables inflation (which makes your loan payments shrink in purchasing power over time). In the end, you're still dealing with trading hours for hours; mucking about with money just creates (and modifies) a representation of that time.
It gets more complex than that.
We can modify time.
Over a 100-year span of time, you can safely increase the level of technology such that productivity goes up by 10 times. If, overnight, you double productivity, then you have a need for half as many workers, and get instant 50% unemployment (this is the fear with automation); that collapses your economy. If you do this slowly over years, you create some unemployed, and then create a need for more jobs as prices fail to keep with inflation: your costs drop because the same wages are paying for less time, so the wage cost lowers, and market pressures still set you at the same general profit margin.
So you get enough technical progress to make 10 times the stuff in the same labor. The same proportion of dollars doesn't reflect the same buying power; or, to put it simply, 1 hour of labor buys 10 times as much stuff. That means even a 10% profit margin is 10 times bigger, because it's 10% of money representing the labor costs of making a thing, and that's kind of huge.
So the answer to your question is complex. The short answer is the profit margins stay the same, in the long-run; and the prices go up to adjust for rising costs (or down to adjust for falling costs--though "down" can be slower if the market isn't experiencing a flurry of change and competition). Those margins would actually have less purchasing power if industries have higher costs.
In the long-run, technical progress as I described drives the entire progression of economies. In the short-term, wage inequality and other opportunistic behaviors create fluctuations. It looks something like this. Trade tends to lower prices; Malthusian growth tends to adjust out any jobs you gain or lose through trade deals etc., so both the job creation argument and the job loss argument (we'll lose jobs if we pay American workers over a certain wage to replace Chinese manufacture--it's $18/hr for men's cotton pants, for example) are meaningless.
Rising costs mean more poverty and poorer people--not poorer rich people, but poorer consumers who have to barter their time against the time of other working-class workers. It is mathematically-impossible to disconnect wealth from the total wage cost of making products.
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no they where not able to find industrial engineers willing to work 60-80 hours a week for $32K a year.
They do not teach the Laffer curve in the Republican school of Voodoo Economics.
Oh yes, they quite definitely do... they just lie about which side of it (or related macroeconomic curves) we are on.
Someone had to do it.
That when someone says it's not wages, it's the lack of available experienced workers, they are actually saying it's wages. The proper response to not being able to find enough people to do a job is to offer more money, not complain that there's no one qualified because not enough people are willing to do the job at the price you're offering.
There are very few occupations where there can be a legitimate lack of talent/experience for the job. Running an assembly line isn't one of them.
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