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Apple Explores Making iPhones in the US, Finds 'the Cost Will More Than Double': Nikkei (nikkei.com) 472

Apple is exploring the idea of making iPhones in the United States. But the company has realized that it will cost more than double to make the shiny new gadgets at home, according to a report on Japan-based outlet Nikkei. From the report:Key Apple assembler Hon Hai Precision Industry, also known as Foxconn Technology Group, has been studying the possibility of moving iPhone production to the U.S., sources told the Nikkei Asian Review. "Apple asked both Foxconn and Pegatron, the two iPhone assemblers, in June to look into making iPhones in the U.S.," a source said. "Foxconn complied, while Pegatron declined to formulate such a plan due to cost concerns." Foxconn, based in the gritty, industrial Tucheng district in suburban Taipei, and its smaller Taiwanese rival churn out more than 200 million iPhones annually from their massive Chinese campuses. Another source said that while Foxconn had been working on the request from Apple Inc., its biggest customer that accounts for more than 50% of its sales, Chairman Terry Gou had been less enthusiastic due to an inevitable rise in production costs. "Making iPhones in the U.S. means the cost will more than double," the source said.
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Apple Explores Making iPhones in the US, Finds 'the Cost Will More Than Double': Nikkei

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  • So? (Score:5, Insightful)

    by kimvette ( 919543 ) on Thursday November 17, 2016 @11:49AM (#53306293) Homepage Journal

    So they would make $300+ per iphone rather than $500+ per iphone. It's still over a 100% markup, so I fail to see much of a problem.

    • Re: (Score:2, Informative)

      by Anonymous Coward

      "According to research company IHS Markit, it costs about $225 for Apple to make an iPhone 7 with a 32GB memory, while the unsubsidized price for such a handset is $649."

      So the Handset costs $225 to make, retails for $649, and Apple tends to target about 26-30% profit on each device they make. So let's say Apple is making about $195 (~200) profit per device, so Apple's overhead for marketing, retailing, R&D is about $229.

      By doubling the cost to manufacture, you are at $450, adding $229 gives you $679 al

    • Re:So? (Score:5, Informative)

      by ShanghaiBill ( 739463 ) on Thursday November 17, 2016 @12:09PM (#53306553)

      So they would make $300+ per iphone rather than $500+ per iphone. It's still over a 100% markup, so I fail to see much of a problem.

      No. The component cost would not double. Only the labor cost. The component cost for an iPhone 7 is estimated to be about $250, and the assembly labor is estimated to be about $10. The average sale price is $649, leaving a marginal profit of roughly $390 per phone. If the cost of assembly doubled, that would decline to $380.

      The figures would be different if the component manufacturing was also Americanized, but since most of the components are made by Asian companies, I don't see that happening.

      Disclaimer: I didn't vote for Trump, and I think the government telling companies where to make their products is idiotic, but, at least in this case, it would make little difference in the price.

      • Re:So? (Score:4, Informative)

        by ranton ( 36917 ) on Thursday November 17, 2016 @12:25PM (#53306737)

        No. The component cost would not double. Only the labor cost.

        There is nothing in the article which makes this claim. Did you read it from another source?

        The article clearly states production costs would double (with no labor / component distinction), and that those costs are currently estimated at $225 for an iPhone 7 with a 32GB memory. So this clearly means the production cost would increase from $225 to $450. The accuracy of statements coming from Foxconn is certainly up for debate, but you seem to be just making stuff up.

        • There is nothing in the article which makes this claim. Did you read it from another source?

          No, I got it from a different resource called "my brain" using a technique called "thinking". There is no reason whatsoever that component costs will significantly change just because the phone is assembled in America. Only assembly costs would change.

          The article clearly states ...

          The article does not "clearly" state anything. It is muddled writing by an incompetent journalist.

      • On the other hand, parts for making ONE phone would be $250. I find it hard to believe that price remains when you're talking millions of phones.

      • The additional costs would also include the new plant. I believe the Chinese government built their factories for them as an incentive to get them in China in the first place.
      • by Kjella ( 173770 )

        No. The component cost would not double. Only the labor cost. The component cost for an iPhone 7 is estimated to be about $250, and the assembly labor is estimated to be about $10. The average sale price is $649, leaving a marginal profit of roughly $390 per phone. If the cost of assembly doubled, that would decline to $380.

        Assuming they actually move the whole assembly process, many companies do some form of pre-assembly if they're required by law to make final assembly somewhere or just want the "Made in <country>" tag without false advertising.

    • You forgot to account for most of the costs. The marginal cost to build one more iPhone, parts and assembly, is about $260. Those 100,000 engineers working for Apple don't work for free, though. Their two big facilities in Cupertino cost about $8 billion, in total their office buildings cost over $15 billion. (Mortgaged and leased for few hundred million per year.) Those Apple stores in the mall? Not free.

      Assuming you buy your iPhone at another retailer, rather than the Apple store, the retailer might ge

      • So the phone originally cost Apple $260 to make, then costs another $350 to replace under warranty, and they only get to keep $495 of the $695 retail price of the original sale? So... The cost to Apple of the original sale, plus replacement, is $610 and they only get $495 of that original sale? So they're assuming a $115 loss (before facilities, taxes, and paryoll) on every 32GB iPhone 7 sold?

        Nah, I think the reality is more along the lines of: we're looking at a BOM cost built using retail pricing rather
  • by IWantMoreSpamPlease ( 571972 ) on Thursday November 17, 2016 @11:49AM (#53306295) Homepage Journal

    If the cost to make them will "more than double" does that mean they will double the price passed on to us? In other words, will they double their profits as well? Or are they screaming and crying how they won't be able to make them "cost effectively" in the mean-old-USA.

    In other, other words, how much profit in built into an iPhone anyway?

    • Re:So (Score:4, Informative)

      by kuzb ( 724081 ) on Thursday November 17, 2016 @11:53AM (#53306347)
      It's estimated that the iPhone 6+ costs about $236 US to make. They've been gouging customers for years.
      • by shmlco ( 594907 )

        According to teardowns, component and assembly costs for phones like the Samsung Galaxy S7 and Note 7 are in the same $250-ish price range and Samsung doesn't do their own system software R&D.

        So either Samsung is also gouging their customers... or perhaps there's just a little bit more to phone costs other than the price of a chip, case, battery, and screen...

      • It's estimated that the iPhone 6+ costs about $236 US to make. They've been gouging customers for years.

        But the cost of the electronics should largely be the same regardless of where it's made, that part wouldn't double. The labor content is a small piece of the $236.

      • by joh ( 27088 )

        And a cup of coffee costs less than $0.1 to make. Don't pay more or you're being gouged.

        Also, if you're serious don't take more money for your work than what you need not to starve and freeze to death until the next day. Everything above this is evil profit. So give if back to your employer. Or even better: Start a company that makes and sells something like the iPhone with no or little profits, even if you could sell it for more.

        Things don't work this way. Everybody sells what he has for the best price he

        • by kuzb ( 724081 )
          There's a difference in what is considered "reasonable" when talking about $1.50 vs $800+. Most people don't consider $1.50 unreasonable, even if the coffee only costs $0.01 to make. Sure it is technically gouging, but it's also very easy to make your own coffee if that's unacceptable to you. Try making your own smartphone.
    • Re:So (Score:4, Insightful)

      by JustAnotherOldGuy ( 4145623 ) on Thursday November 17, 2016 @11:55AM (#53306365)

      In other, other words, how much profit in built into an iPhone anyway?

      That metric really depends on how many child laborers you can fit into each factory.

    • Cost to 'manufacture' (i.e. assemble the outside sourced components): $5. So, the $650 phone might skyrocket in price to $655.
    • Re:So (Score:5, Informative)

      by bluefoxlucid ( 723572 ) on Thursday November 17, 2016 @12:59PM (#53307237) Homepage Journal

      Most companies (Apple and Microsoft being notable exceptions) have narrow or unstable margins (and even Microsoft has a cycle of loss years and profit years). The average profit margin in U.S. in total is 10%; 90% of income goes to wages.

      All wages are paid from revenues; revenues are paid from sales; and sales are paid from income. Making a product requires labor from many people, fractioned together. If you have 100 people at $10/hr making 1,000 widgets per hour, that widget costs $1, and can have a price no lower than $1. Each of those people, in that 1 hour, makes enough money to buy 10 such widgets.

      In one sense, those people are trading widgets for other widgets (or food). In another sense, they're trading labor for labor (time). When you make $20/hr, you're essentially trading 1 hour of your time for 2 hours of theirs.

      That means money is kind of a closed system. There's a limited amount of income in any time frame, which determines what can be bought and what jobs can exist at that technology level. When you add in trade, you're moving income between isolated trading partners, which works the same way. Central banks can issue more money, allowing banks to give loans, allowing consumers to spend more, which adds money to the system; however, this counters technical progress (which causes deflation) and enables inflation (which makes your loan payments shrink in purchasing power over time). In the end, you're still dealing with trading hours for hours; mucking about with money just creates (and modifies) a representation of that time.

      It gets more complex than that.

      We can modify time.

      Over a 100-year span of time, you can safely increase the level of technology such that productivity goes up by 10 times. If, overnight, you double productivity, then you have a need for half as many workers, and get instant 50% unemployment (this is the fear with automation); that collapses your economy. If you do this slowly over years, you create some unemployed, and then create a need for more jobs as prices fail to keep with inflation: your costs drop because the same wages are paying for less time, so the wage cost lowers, and market pressures still set you at the same general profit margin.

      So you get enough technical progress to make 10 times the stuff in the same labor. The same proportion of dollars doesn't reflect the same buying power; or, to put it simply, 1 hour of labor buys 10 times as much stuff. That means even a 10% profit margin is 10 times bigger, because it's 10% of money representing the labor costs of making a thing, and that's kind of huge.

      So the answer to your question is complex. The short answer is the profit margins stay the same, in the long-run; and the prices go up to adjust for rising costs (or down to adjust for falling costs--though "down" can be slower if the market isn't experiencing a flurry of change and competition). Those margins would actually have less purchasing power if industries have higher costs.

      In the long-run, technical progress as I described drives the entire progression of economies. In the short-term, wage inequality and other opportunistic behaviors create fluctuations. It looks something like this [amazonaws.com]. Trade tends to lower prices; Malthusian growth tends to adjust out any jobs you gain or lose through trade deals etc., so both the job creation argument and the job loss argument (we'll lose jobs if we pay American workers over a certain wage to replace Chinese manufacture--it's $18/hr for men's cotton pants, for example) are meaningless.

      Rising costs mean more poverty and poorer people--not poorer rich people, but poorer consumers who have to barter their time against the time of other working-class workers. It is mathematically-impossible to disconnect wealth from the total wage cost of making products.

  • by MitchDev ( 2526834 ) on Thursday November 17, 2016 @11:49AM (#53306297)

    If making phones "at home" means America, why aren't they paying their taxes here?

    • If making phones "at home" means America, why aren't they paying their taxes here?

      Paying taxes in the US is part of the added cost of manufacturing the iPhone here.

    • by Dog-Cow ( 21281 )

      They pay taxes on all income earned in the US to the IRS. Minus deductions and stuff. What the fuck does that have to do with where the phone is manufactured?

  • Since they charge more than quadruple what it costs to make it this shouldn't be a problem.
  • Apple is in the great position of having so much money, they could spend quite a lot making this happen - but only making some phones in the U.S...

    Then they could give purchases an option - pay extra for an iPhone made in the U.S.? Apple could even be generous and split the difference with the consumer.

    The people would really have a chance to put their money where their mouth is so to speak...

    The thing is I have really mixed feelings about buying such a device. I would definitely love to support a return

  • by Anonymous Coward on Thursday November 17, 2016 @11:56AM (#53306381)

    Apple looks into making the phones in the US and their answer is to ask the Chinese company they're currently using, who has no interest in making them in the US, how well that would work? And surprise surprise, they came back with, "sorry, costs too much, you should keep making them here where we already have our facilities." I'm shocked, SHOCKED!

    How about investigate US-based companies? How about an investment group who might be able to put together a group who could find a way to do it more cheaply here?

    • by Anonymous Coward on Thursday November 17, 2016 @12:30PM (#53306809)

      Just FYI, Foxconn operates factories in something like 14 different countries. Doesn't seem that strange to ask them to mock up a plan to set up a factory in the US. After all they do have all the manufacturing expertise for those devices, what US company even makes anything related to that sort of device to ask?

    • by joh ( 27088 )

      The US totally lacks the industrial infrastructure for that. OK, you could import all components and build a robot factory assembling iPhone from these, but where's the difference then?

      All of this became how it is because people buy cheaper goods over more expensive ones, just as companies make their products where it's cheaper to make them. This goes all the way back to people trading foodstuff against other things, because it was cheaper this way than to make them themselves. Global trade has been used by

      • The difference is that when someone thinks, "Hey, I can build a component factory here, down the road from a big customer." that someone will be here instead of there - and so will be the factory and the jobs. And later, someone else will think "Since I've got all of these components being built right here, I should build my widget here too."

        That's how Detroit grew, and how it died. When it was growing, the answer to "where?" was Detroit (and Chicago, Milwaukee, Toledo, Cleveland, Eerie, Buffalo, etc). W

    • Apple looks into making the phones in the US and their answer is to ask the Chinese company they're currently using, who has no interest in making them in the US, how well that would work?

      Foxconn is Taiwanese. They would probably be more than happy to reduce their dependence on China, which is a tenuous relationship at best.

  • It may cost double to make the phones in the US, but we'll just make the Chinese government buy the phones for us.

  • Cost will double? (Score:3, Informative)

    by skaralic ( 676433 ) on Thursday November 17, 2016 @11:58AM (#53306397)
    According to this article [zdnet.com]. The $649 iPhone 7 costs around $220 to make meaning that Apple gets roughly around $400 in profit. Lets imagine that the cost does double, they will still be getting ~$200 per phone. A very healthy profit with a lot of that money staying in the US rather than China or Ireland.

    Also, the cost doubling calculation (done by Foxcon!) probably assumes that they would do things exactly the same in the US as they do in China. That is, hiring thousands of people for minimal pay to to a large part of the assembly by hand. However, if moved to the US they would probably automate more of the process and employ much less people. Think of the savings on suicide netting alone.
    • by JoeyRox ( 2711699 ) on Thursday November 17, 2016 @12:05PM (#53306495)
      Allowing external forces to decide what a healthy / acceptable profit margin can be is the surest way to destroy capital investment by businesses.
    • by Yvan256 ( 722131 )

      And you think machines never think of suicide?

      [Barney Stinson] Have you met Marvin [wikipedia.org]? [/Barney Stinson]

    • by Freischutz ( 4776131 ) on Thursday November 17, 2016 @12:15PM (#53306627)

      According to this article [zdnet.com]. The $649 iPhone 7 costs around $220 to make meaning that Apple gets roughly around $400 in profit.

      That assumes that Apple has $0 development costs, $0 shipping costs, $0 distribution costs, $0 marketing costs, they have $0 related to sales, $0 costs due to keeping an adequate inventory of iPhones on hand to supply distributors and of course there is $0 wastage (theft, etc.). Also, because we all know iPhones never break down, Apple has $0 costs related to returns and warranty repairs. Methinks that the your formula:

      retail price - manufacturing costs = Apples profit per iPhone sold

      ...does not quite hold water

    • by imgod2u ( 812837 ) on Thursday November 17, 2016 @12:20PM (#53306683) Homepage

      Most of the cost increase will probably come from having to ship parts back and forth. A great deal of China's appeal for manufacturing is that you can get almost any custom screw, panel, molding, etc. in a day vs months in any other place. There's just so many companies there setup to be someone's supply chain and they've had multiple decades to perfect the process of turning concept into tens of millions of parts in a very very short amount of time.

      Compared to that, the labor costs are miniscule.

    • So, if your employer were to call and say, skraralic, we notice we've been paying you $50k a year. We've decided to pay you $25k a year instead. You'll still be making a salary.

      You would think that is just and acceptable?

    • Amusingly enough, Trump has tossed around the idea of a 35% tarrif, which works out to $227.15 on a $649 phone.

  • With all their design skills they haven't made a 90% or higher an automated assembly process yet? I wonder if they could send it as a kit you assemble... ;-)

    I have a feeling the first manufacturing they ever bring back will be an automated factory. I could jest but it would be understandable if it's a satellite facilitating managed mostly remote from their existing facilities whenever that time comes...

    • Why spend capital on automation when you literally have A BILLION HUMANS that work for pennies.
    • by Sebby ( 238625 )

      I wonder if they could send it as a kit you assemble... ;-)

      Not a bad idea. That was done in the 80's with the ZX81 computer [wikipedia.org]

    • In short that will happen. This double price if made in America is based if they make the phones in America the same way they do in China.

      The low skill manufacturing job is going to go out the window, no matter how much the low skill laborers complain and have political pressure. Because It comes down to simple business. Hire 20 people at 100k a year and invest 50 million in automation that can be depreciated over 20 years. vs hiring
      100 people to work the line at 50k for 20 years.

      It is more economical to

  • If they switch to total automation, the investment cost will be high but ultimately the cost will decline to there mere cost of maintenance. Having people in the US doing the machine maintenance will still result in more money in the US economy.

  • Half the profits.

  • Adding another $300 wouldn't phase me.
  • They should manufacture phones in the USA and China, price them accordingly and sell them with a big American flag on the USA phones. I'm sure everyone in the red states will snap up the higher priced American phones and then manufacturing jobs will all roll back to the USA.

  • If they keep making them the same way they make them now. But the technological progress works at their economies of scale. They have no incentive to automate many of the menial tasks which go into production of the devices if hiring X10 more people somewhere else is cheaper than automating at home. But this is not progress. It's regression. First, new automation technologies don't get built, so cheaper (in the long run) production techniques don't get implemented. And, second, fewer people are traine
  • It's not a very well written piece, as there seem to be several key points that are likely to have a significant impact not considered:

    Where is the factory going to come from? How much does that cost, and how long will it take to get online?
    Have they considered the 45% tariff Trump is planning on putting on goods from China? Apple will still need to import the parts, I assume, unless they are planning on making those in the US too, and components are still goods, just like finished products.
    Where do
  • Maybe it should go out to a competitive bid. Perhaps with investments in robots, they can be made more cheaply here. Maybe they can be made in multiple places. They already build Macbooks here.
  • Why would you go to Foxconn to request something like this? They don't have a US manufacturing capability. Of course it's going to be expensive as hell to build it from the ground up. Why wouldn't they solicit a bid from one of the US based contract manufacturers?
  • The cost to Apple doubles, driving up retail $6.

    The manufacturing cost of an iPhone 6 is about $5. The parts and materials cost around $220.

    Making it cost $10 or $11 to manufacture isn't going to break anyone.

    http://www.zdnet.com/article/h... [zdnet.com]

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