Don’t Expect Apple to Fall for US Again

Analysis of the impact of Apple moving its production — or at least some of it — to the US will continue over the next several months but with the imminent change in US administration it could be peaking now.

Back and forth continues among various media sites debating whether Apple can or can’t, and should or shouldn’t, relocate some of its assembly.

Forbes today points to multiple studies, one by Syracuse and another by MIT (from June) that estimate assembly costs for a high-end domestically produced iPhone would rise 5% ($30 to $40). Other estimates peg it at closer to 13% ($100).

To be sure, there will be more of these types of discussions taking place. But much of the chatter disregards that Apple can’t do this alone. We have argued previously that Apple’s mastery of the supply chain has as much to do with its success as the occasionally startling hipness of its designs. The cool factor is subsidizing; keep in mind Apple has only 12% share of the cellphone market, and the tablet market — in which it once commanded a 90% stake — is now absolutely flooded with competitors and shrinking by the year. Apple’s net income has been falling with it, and the Watch Series 2, its latest entrant in the smartwatch sector, is not only losing share, the entire category is diving.

Capacity would not only be a huge issue, but the costs of scaling up are not included in any of the financial analyses I’ve read. The very real costs of $1 million or more per high-volume line would be to be absorbed — and passed on. (Zhengzhou is said to be the largest Foxconn/Apple factory in the world, with 94 lines currently running.) That’s not including the costs of finding and/or greenfielding factories, hiring, training, and so on. By the time all that is done, a new administration could be in place.

And then there’s the issue of taxes, which most reports fail to assess or even discuss. A New York Times article today, however, quotes a former chief of staff of the congressional Joint Committee on Taxation as saying: “US multinationals are the world leaders in tax avoidance strategies. In doing so, they create stateless income — income that has become unmoored from the countries to which it has an economic connection.”

Apple has stashed scores of billions of dollars offshore to avert a ginormous tax bill. The US corporate tax rate is third highest in the world on a top marginal basis, according to the Tax Foundation. This is a bit of a red herring — the lowest listed non-island nations are Uzbekistan and Turkmenistan, and no one is thinking of rushing there. But Ireland is among the lowest 20, a fact Apple has used to its advantage (although that could bite them, if the EU has its way).

All of this adds up to a very unlikely scenario that Apple will be motivated to relocate production. I could see a bit of highly publicized migration to what’s essentially a US showroom as a means to give politicians a “win” and displace some heat, but it would be trivial relative to the overall volume.

Update: Here’s yet another opinion, published on Dec. 29. And other, from the South China Post, asking whether China’s manufacturing is “hollowing out.”

Dec. 30 update: Foxconn’s CEO says will invest $8.8 billion in a new flat-panel display plant in China.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow