Why Apple won’t make iPhones and iPads in the U.S.

Smart piece by All Things D’s Arik Hesseldahl about the presidential debate question on manufacturing and why it doesn’t make sense for Apple to move the assembly of iPads and iPhones back to the U.S.

The July 2011 report by the University of California researchers that Hesseldahl referred to is worth a look for anyone who’s interested in this argument — an argument that seems never ending, in political campaigns, at the kitchen table at the local bar (not so much at the local Apple Store).

Hesseldahl noted that the report shows that no more than $10 of the cost of an iPhone or an iPad actually goes to Chinese workers, which is the headline. But wait. There’s more.

What Kenneth L. Kraemer, of UC-Irvine; Greg Linden, of UC-Berkeley and Jason Dedrick of Syracuse University essentially did was to take a look at where the money goes after you pay for an iPhone or an iPad.

Take the iPhone 4 (they did their work in 2010), which the researchers determined had a wholesale price of $549. Nearly $335 of that returned to the U.S. or U.S-based companies, mostly Apple, which captured $321 of the money. Japan received $3 from the sale, South Korea $26, Taiwan $3 and the European Union $6. China, where the device is assembled, got 10 bucks.

“When we started this, our whole line of reasoning was, ‘Well, this stuff is getting manufactured in China,” Linden told me last week. “The U.S. must be missing out on a lot of value.’ The answer turned out to be not a whole lot.”

It’s a bit of an academic analysis (these are academics after all). The researchers looked at the companies that sold parts to Apple and awarded the money to the companies’ home countries. But the study provides some interesting fodder for that ongoing “why not build them here?” discussion.

For instance, what if Apple actually did move iGadget assembly here? And what if, say, they had to double, or even triple, the wages they pay those doing the assembly work? It would add $20 or $30 to the cost of a $549 iPhone.

(I know. I know. Consumers generally don’t pay anything near $549 for an iPhone, because carriers subsidize the price. But remember, somebody pays.)

Linden says he’s noodled around with the cost difference between manufacturing the iGadgets in the U.S. vs. China. He figures Apple would have to charge $15 to $20 more a unit, a surprisingly small premium partly because a U.S. operation would rely more heavily on automation and less heavily on human labor to hold costs down.

But in some ways, the question might be irrelevant. Bringing assembly back to the U.S. “would be Tim Cook’s worst nightmare,” Linden says. Apple’s contract manufacturers depend on a wide web of component suppliers located in Asia, meaning Apple CEO Cook would have to get those components here.

Then there is the fact that Apple went out of the manufacturing business years ago, when it outsourced the job to operations like Foxconn.

“To move it here, either they would have to bring it back in house, which seems unlikely, because they don’t have that whole infrastructure anymore. You’d be having to rebuild your whole capability, ” co-author Dedrick told me last week. “Or you’d have to try to get the manufacturers that you’re sourcing from to build plants in the U.S. And  they have plants here, but they are not high volume plants.”

In other words, it’s not going to happen.



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