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.

Believing Foxconn Means Suspending Belief

The Foxconn makeover is in full swing, with the latest this piece from the New York Times that supposes that the world’s largest ODM is worried that Apple — yes, Apple — might be bringing it down.

When Apple was subsequently criticized for low wages and poor working conditions at his factories in China, it was Mr. Gou’s company, the Foxconn Technology Group, and not Apple, that caught the most heat.

What this conveniently ignores, of course, is that no matter how demanding and dictatorial Steve Jobs could be, those weren’t Apple employees jumping to their deaths from their Cupertino offices.

Such unpleasantries aside, what the story also reveals is that Foxconn does not intend to go head to head with its customers. There’s ample evidence to the contrary already, of course, not the least of which are the Foxconn retail stores popping up all over China, not to mention the litany of ODM phones and other consumer electronics it design and makes.

To paraphrase an old saw, believe what I say, not what I do.






Carbon Disclosure, Meet Plastics Disclosure

Environmental Leader and the New York Times are reporting that hundreds of companies and institutions should expect to receive a questionnaire in early October about their use of plastic. The Plastic Disclosure Project, right ahead.


Industry estimates state that 300 million tons of virgin plastic are made every year. If just one percent can be saved through efficiencies, better design, or increased recycling, then 3 million tons could be saved, which is roughly what some conservative estimates say are floating in the middle of the Pacific Ocean. -Plastics Disclosure Project (PDP)

Some companies have already made progress in better managing plastics.  Electrolux, the Swedish appliance maker, for example, introduced a range of vacuum cleaners in February that are made from recycled plastic. Coca-Cola has devised a plastic bottle that contains some plant-based materials, a small step for which the soda company seems to be wringing significant PR traction.

Most interestingly perhaps, as the New York Times points out, Procter&Gamble has the long-term aim of using 100% recycled or renewable material in its products and packaging.

Better managed plastics appeals to some of us as a resource-saver if nothing else — for too long we’ve treated plastic as an almost-infinite supply of cheap material, both raw and article.

Remember the Carbon Disclosure Project — which is not gone but currently forgotten?  Well, this plastics program seeks to inspire organizations to approach plastic consumption in much the same way as we’ve begun to approach carbon consumption:  more awareness, some conservation.  Fair enough.

Targeted big users of plastic include:

  • companies
  • universities
  • hospitals
  • sports groups

This October, the plastics questionnaire will ask organizations to report how much plastic they use and how they recycle.  Further, organizations will be asked what policies they have to:

  • reduce consumption
  • increase recycling
  • increase the use of biodegradable plastic

Plastic Disclosure blog is here, if interested.