Why Apple says it can't build an iPhone in the US

[AppleScruff1]

There, I edited it to a link. Maybe someone will read it now instead of complaining it's too long.

http://www.msnbc.msn.com/id/46091572/ns/business-us_business/#.TxynyaVtrNU

 

[Shrink]

Holy Crap.

I'm sure that what you posted is well researched and interesting. A teeny bit long. When I have an hour I'll read it all.

I believe it was Proust who, after writing a very long letter to a friend, apologized saying "I'm sorry this letter was so long. I didn't have time to write a short one".

 

[SuperCachetes]

I had to cut it short because it was over the forum character limit.

Why wouldn't you just cut it short out of common sense?

Didn't read it, but the short version is "Apple won't build the iPhone in the United States because you wouldn't pay for it if they did."

 

[malman89]

Why wouldn't you just cut it short out of common sense?

Didn't read it, but the short version is "Apple won't build the iPhone in the United States because you wouldn't pay for it if they did."

Yeah, a link could've sufficed. I read it on NYT.com yesterday when it originally was posted. Decent read.

But that is not the short version at all. The short version is "Apple won't build the iPhone in the United States because it would eat into profit margins. As an excuse, Apple states there's not enough skilled labor in the U.S., but in reality they mean there isn't enough skilled labor they can wake up in the middle of the night and force to work a 12-hour shift because Steve Jobs demanded a glass screen last minute" - or something close to that.

 

[Apple OC]

lol at the continue reading link ...

without reading it ... we all know why Apple uses cheap overseas labor ... profit

 

[AppleScruff1]

Why wouldn't you just cut it short out of common sense?

Didn't read it, but the short version is "Apple won't build the iPhone in the United States because you wouldn't pay for it if they did."

I guess I don't have common sense like you do. And you wouldn't have read it if I just linked to it.

 

[Shrink]

I guess I don't have common sense like you do. And you wouldn't have read it if I just linked to it.

So it works out the same.

If you supplied a link, you say no one will read it.

So you didn't supply a link, and wrote "War And Peace", and nobody is reading it.

I think the take-away here is perhaps to write something a bit shorter.

 

[G4er?]

Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames.

Labor laws

Corning was founded in America 161 years ago and its headquarters are still in upstate New York. Theoretically, the company could manufacture all its glass domestically. But it would “require a total overhaul in how the industry is structured,” Mr. Flaws said.

Pollution regulations

That's why companies move from the US to China.

 

[AppleScruff1]

So it works out the same.

If you supplied a link, you say no one will read it.

So you didn't supply a link, and wrote "War And Peace", and nobody is reading it.

I think the take-away here is perhaps to write something a bit shorter.

I'm not trying to force anyone to read it. I thought it was an interesting read, that's all. Obviously no one else is interested. So be it.

 

[Rodimus Prime]

Sum it up.

American labor laws do not allow companies to treat their employees like robots and force them to living at the factory working 80 hour weeks wiht no breaks and very little pay.

Basicly laws for worker safety and health are better hear and workers OMG would like to have a life outside of work. The same can not be said about China.

 

[carlgo]

I read it. Interesting. They said an iMac made here would cost $22 in labor, and only $5 in China.

The rest was crap justifying going overseas.

And of course the quote "We are not obligated to help the situation in the US, we are just obligated to make the best iPhone". Some will defend this.

 

[thejadedmonkey]

I read it. Interesting. They said an iMac made here would cost $22 in labor, and only $5 in China.

The rest was crap justifying going overseas.

And of course the quote "We are not obligated to help the situation in the US, we are just obligated to make the best iPhone". Some will defend this.

Well that's that then. It sucks Apple's profit margins are so slim they can't afford to spend the extra $17 to keep jobs in the USA.

 

[velocityg4]

Sum it up.

American labor laws do not allow companies to treat their employees like robots and force them to living at the factory working 80 hour weeks wiht no breaks and very little pay.

Basicly laws for worker safety and health are better hear and workers OMG would like to have a life outside of work. The same can not be said about China.

Therein lies the solution. Require that for any product shipped in from a foreign country. Must be produced at factories that follow the same environmental regulations and OSHA regulations that a factory on US soil would have to provide. Also require those workers to be paid the same as would be expected of a US worker along with pensions, benefits &c. If the product type is dominated by unions then exorbitant union wages and benefits must be met. This would encourage companies to return to producing within the US again.

 

[*LTD*]

Therein lies the solution. Require that for any product shipped in from a foreign country. Must be produced at factories that follow the same environmental regulations and OSHA regulations that a factory on US soil would have to provide. Also require those workers to be paid the same as would be expected of a US worker along with pensions, benefits &c. If the product type is dominated by unions then exorbitant union wages and benefits must be met. This would encourage companies to return to producing within the US again.

This requires the uncompetitive US infrastructure to already be in place elsewhere. That can take years. You're asking for sociocultural reform - a demanding enterprise, even at the best of times.

Workers don't build a sense of entitlement overnight.

 

[miles01110]

Didn't read it, but the short version is "Apple won't build the iPhone in the United States because you wouldn't pay for it if they did."

Actually that really isn't the point of the article at all. The short version is more like, "The US can't provide resources with the same speed and low labor cost as China." The estimated price increase from a US-made iPhone (+$65) is mentioned once in the entire 7-page article.

 

[Rodimus Prime]

This requires the uncompetitive US infrastructure to already be in place elsewhere. That can take years. You're asking for sociocultural reform - a demanding enterprise, even at the best of times.

Workers don't build a sense of entitlement overnight.

You mean infestruction that is required for all western countries and countries that do not have human right issues. OMG. Human rights cause so many problems. Workers be treated like human beings.

China cheats the system and does many things that hurts inter-nation trade in their favor. Hurts the Chinese people as well.

Actually that really isn't the point of the article at all. The short version is more like, "The US can't provide resources with the same speed and low labor cost as China." The estimated price increase from a US-made iPhone (+$65) is mentioned once in the entire 7-page article.

don't you love how they bury that little fact in there and I would not be surprised to see if that +$65 is even over estimated on the high side.

 

[vvswarup]

You mean infestruction that is required for all western countries and countries that do not have human right issues. OMG. Human rights cause so many problems. Workers be treated like human beings.

China cheats the system and does many things that hurts inter-nation trade in their favor. Hurts the Chinese people as well.



don't you love how they bury that little fact in there and I would not be surprised to see if that +$65 is even over estimated on the high side.

On what basis are you saying that the added cost of producing an iPhone in the US is +$65 or even over estimated?

----------

Well that's that then. It sucks Apple's profit margins are so slim they can't afford to spend the extra $17 to keep jobs in the USA.

Apple contributes quite a bit to the US economy. First of all, Apple's products are designed by engineers in Cupertino. Also, if you look at the BOM for iOS devices, a lot of them are designed by American companies. For example, Qualcomm supplies the CDMA chip for the iPhone and iPad. Qualcomm is an American company. Qualcomm is putting money in the pockets of Qualcomm and its employees in the process. Also, Apple operates tons of stores in the US. That provides jobs. Apple and other players in the smartphone space, e.g. Google, have ushered in a new era in mobile applications. We have barely scratched the surface of what mobile apps can do. From 2008 to 2010, Apple paid out over $1 billion to iOS developers. The App Store has helped the mobile applications industry grow by leaps and bounds, creating thousands of jobs in the process.

So manufacturing jobs aren't the only way of contributing to the US economy. And it's funny how whenever there's an article about Foxconn, there is practically no mention of any other customers of Foxconn besides Apple.

Did you know that the best Android phones on the market are designed entirely by foreign corporations. At least Apple provides some jobs to Americans such as engineering jobs, retail jobs, software jobs, etc. but the best Android phones provide even less than that.

It's not sustainable to run a business at a razor thin margin. Maybe in the beginning, Apple could take a hit to their margins. But over the long term, Apple is at a disadvantage. Competitors can undercut Apple on price. Apple would have to charge higher and higher prices just to break even.

 

[SuperCachetes]

Actually that really isn't the point of the article at all. The short version is more like, "The US can't provide resources with the same speed and low labor cost as China." The estimated price increase from a US-made iPhone (+$65) is mentioned once in the entire 7-page article.

I should have been more clear. I wasn't summing up the article, I was summing up reality. Precisely because of the point you mention, people would not pay the increased cost of the device.

As for the $65 number, I'm pretty skeptical.

 

[Bernard SG]

As for the $65 number, I'm pretty skeptical.

Depends which side of things you're skeptical. If you think it's understated then okay.

 

[garybUK]

Apple is an American company... yes... but, not being American... i don't want to see a ~8% increase just because it's made in America.

 

[malman89]

don't you love how they bury that little fact in there and I would not be surprised to see if that +$65 is even over estimated on the high side.

Yeah, it was like "We're just going to sneak these figures in there." According to the article, that was on the highest end of estimates.

On what basis are you saying that the added cost of producing an iPhone in the US is +$65 or even over estimated?
----------

It's in the article, though I'd love to see some hard data accompanying it.

It's not sustainable to run a business at a razor thin margin. Maybe in the beginning, Apple could take a hit to their margins. But over the long term, Apple is at a disadvantage. Competitors can undercut Apple on price. Apple would have to charge higher and higher prices just to break even.

Um, the iPhone 4S costs $188-245 to make depending on the model for versions that costs $649-849 unlocked or $199-399 and your carrier subsidizes a considerable amount. If they added say $30-65 per phone, they didn't have to raise prices. It would just cut into their not-even-close industry leading profit margins per phone.

Apple is an American company... yes... but, not being American... i don't want to see a ~8% increase just because it's made in America.

There's no need for them to increase prices, see above. They or the carriers probably would try and justify one, though.

 

[kdarling]

On what basis are you saying that the added cost of producing an iPhone in the US is +$65 or even over estimated?

The article quoted sources estimating $65 in additional wages. That sounds a little high, but reasonable. Each iPhone currently costs about $3 in Foxconn labor, or 1/100 of a worker's monthly $300 salary. A US factory worker making $3000 a month would raise the cost by ten times = $30, but then you have to add in Social Security, pension, health care training, etc, which would likely double that.

Ignoring other factors, let's say it did cost $65 more to build an iPhone in the USA:

Currently Apple has the largest profit margin in the smartphone business, estimated as high as 55%. Thus an iPhone that sells for $650 makes $355 for Apple. If a USA version "only" made $355-65= $290, then that would be 290/650 = 44% profit margin, which is still at the high end of smartphone profits.

Apple contributes quite a bit to the US economy.

A pittance compared to what they could contribute. (Note, this goes for other companies as well, but we're talking about Apple here.)

US factory jobs would have a multiplier effect, improving local economies many times over.

In addition, Apple keeps billions in profit in banks overseas, just to avoid paying tens of billions in US taxes.

(snip)From 2008 to 2010, Apple paid out over $1 billion to iOS developers.

Yes, and carriers have paid out $3 billion to BREW developers for dumbphones. Mobile is good all over.

Did you know that the best Android phones on the market are designed entirely by foreign corporations. At least Apple provides some jobs to Americans such as engineering jobs, retail jobs, software jobs, etc. but the best Android phones provide even less than that.

Quite the contrary, companies like Samsung and HTC have a large US mobile industry presence, with R&D labs and support personnel all across the country.

(Apple has about 12,000 corporate employees in CA, IIRC. Samsung alone employs over 10,000 within its US corporate and R&D staff in states like TX and NJ. I don't know how many HTC has, but their mobile software design strategy is done in their labs near their Seattle HQ, and they have other wireless labs in NC and GA.)

Samsung's new $9 billion CPU chip factory in Texas was that state's largest foreign investment. Much of its output is destined for Apple, which simply proves that US factories are not impossible.

As for retail jobs, Samsung sells more phones than Apple in the USA, with higher sales royalties.

Companies like Samsung also bend over backwards to be good philanthropic community citizens, something Apple is not noted for (although hopefully Cook is going to change that).

It's not sustainable to run a business at a razor thin margin. Maybe in the beginning, Apple could take a hit to their margins. But over the long term, Apple is at a disadvantage. Competitors can undercut Apple on price. Apple would have to charge higher and higher prices just to break even.

Apple is in no danger of being anywhere near razor thin margins. They're already charging higher prices than they need to, and stashing the extra billions away.

The point is, of all companies in the US that have gone overseas, Apple probably could afford most to bring some of those jobs back.

 

[gnasher729]

Sum it up.

American labor laws do not allow companies to treat their employees like robots and force them to living at the factory working 80 hour weeks wiht no breaks and very little pay.

Tell that to the people working in the computer games industry.

Currently Apple has the largest profit margin in the smartphone business, estimated as high as 55%. Thus an iPhone that sells for $650 makes $355 for Apple. If a USA version "only" made $355-65= $290, then that would be 290/650 = 44% profit margin, which is still at the high end of smartphone profits.

Wow. Where do these estimates come from?

I'll tell you if Apple announces 55% margin on iPhones tomorrow, the share price will double.

 

[AppleScruff1]

The point of the article is that the infrastructure does not exist here in the US and it would be literally impossible to do what the Chinese do and how quickly they do it. For those that read the article, a few key examples were given. Foxconn hired over 8000 production engineers. In 15 days. Try that anywhere else in the world. The Foxconn complex is a city of over 230,000 employees. Many components are manufactured right there. Utterly amazing.

 

[wonderspark]

Makes you wonder what would happen if Apple and similar companies built large manufacturing complexes in the US, and even hired some of those Foxconn workers to move over as well, just to keep the ball rolling. They could make the entire complex from scratch with ultra efficiency. Glass, chips, plastic, screws and everything else could all funnel directly to the assembly line, which ends at a trucking / train depot for shipment. As the productions grow, Americans would be filling more and more jobs.

Apple seems to have enough money to make the change, but it's all about being willing to have the balls to do it in the face of maximizing short-term profits. If China were to somehow become an enemy, it would force that change, anyway. Let's hope that doesn't happen, but it's an example of how fast Apple could go from billions to bankrupt in a flash.