It was, to paraphrase Homer, the headline that launched a thousand blogs: “Apple Could Make iPhones in US in Future: Sources.”
Cue all the breathless op-eds.
It won’t happen.
Not because Apple doesn’t care about the US. And not because Tim Cook, struggling as mightily as any billionaire could to fill the shoes of Steve Jobs, has something against American workers.
But it’s simply not that simple.
In 2013, to great acclaim, Google opened a handset plant in Dallas, where it hoped to employ nearly 4,000 workers, proving once and for all America could compete in high-volume cellphone manufacturing.
Not two years later, the search giant shuttered the site.
Almost all the components used in the various Apple iPhones are made in Japan, Korea, Taiwan or China. For the geographically challenged, that’s an ocean way from the US. Manufacturing is a supply-chain business; no company makes everything themselves. And most of Apple’s suppliers are foreign-owned. Apple is not exactly known for its generosity. Those suppliers won’t be willing to spend the billions it would take to relocate just to keep what in some cases is not much better than break-even business.
Even the unnamed source for the initial Nikkei Asian Review report acknowledges that Foxconn would be hit by a sharp rise — perhaps 50% — in production costs. “Making iPhones in the US means the cost will more than double,” the source said.
The notion, especially, that Taiwanese stalwarts Foxconn and Pegatron would suddenly build giant factories in the US is far-fetched as well. Remember that $40 million investment Foxconn said it would make a couple years ago? Pennsylvania is still waiting.
Indeed, they are likely salivating at the possibility of new US trade barriers, even for a key customer like Apple. Why? Because Apple’s gross profit margin is breaching 40%, while those of their ODM suppliers are around 10% or less. With the design, manufacturing and supply chain knowledge so firmly in the hands of the ODMs, should events conspire to make Apple slide, they are well-positioned to pick up the slack.