Pressure is beginning to mount for U.S. companies to manufacture their products here, instead of farming the factory jobs out to China. And that pressure has even reached Apple Inc. (NASDAQ:AAPL).
A report in Nikkei Asian Review claims Apple began actively exploring the possibility in June, talking with its manufacturing partners about the possibility of an American-made iPhone.
But how realistic is it?
Apple Has Asked Partners to Put Together a “Made in the USA” Plan
Nikkei Asian Review says Apple approached the two Chinese companies that share the role of assembling its iPhones to investigate the possibility of making iPhones in U.S. factories.
According to the report, Pegatron (OTCMKTS:PGTRF) declined to follow through with the exercise. Hon Hai Precision Industry Co., Ltd (OTCMKTS:HNHPF) — better known as Foxconn — complied but was said to be less than enthusiastic over the idea. Apple represents over half of Foxconn’s sales and the prospect of its customer moving production from China to American factories is a wrinkle it wouldn’t have been planning for.
Whether losing the assembly contract altogether to U.S. competitors or being forced to invest in manufacturing plants in the U.S. to keep Apple’s business, an American-made iPhone would not be good news for Foxconn.
Some Apple Products Are Already Made in the USA
With all the conjecture about the possibility of an an American-made iPhone — not to mention the rhetoric from President Elect Donald Trump about repatriating manufacturing jobs and putting tariffs on Chinese goods — it’s easy to overlook that fact that AAPL already does manufacture one of its products here.
The Mac Pro is Apple’s professional level desktop workstation, and the most expensive Mac it offers. Since 2013, the Mac Pro has been built in Austin, Texas.
And as Apple CEO Tim Cook has been quick to point out, the computer isn’t merely assembled in the U.S., it’s manufactured. Components like the anodized aluminum shell are being created from the raw material stage.
So there is a precedent.
Does That Mean AAPL Could Swing an American-Made iPhone?
While building the Mac Pro in the U.S. was a positive step for Apple and showed a commitment toward U.S. manufacturing, an American-made iPhone would be a more challenging proposition.
For one thing, the Mac Pro is a specialized, high-end PC. In the last quarter, AAPL sold 4.88 million Mac computers and the majority of those were MacBooks and iMacs. The Mac Pro represents a small fraction of overall Mac sales.
In comparison, during the same quarter, AAPL sold 45.5 million iPhones. That’s manufacturing on an entirely different scale when it comes to volume, but also when it comes to precision. iPhones are tiny devices and it takes highly skilled workers and specialized equipment to assemble them.
Cook has repeatedly said in interviews — including on 60 Minutes in 2015 — that a lack of skilled workers in the U.S. is the reason his company outsources manufacturing to China, not cheap wages.
Almost all of Apple’s iPhone component suppliers are also based in Asia, so moving production to the U.S. would require significant changes in the supply chain as well.
The Bottom Line: The iPhone 8 Still Will Be Made in China
Much as the prospect of an American-made iPhone would make many people happy, it’s unlikely to happen any time soon.
The sheer scale of the project is daunting. Half of Foxconn’s 690,000 employees in China are working on Apple products, so that is a huge workforce to be hired and trained. The factories don’t currently exist in the U.S.
And sources told Nikkei Asian Review that Foxconn’s projections showed the cost of an American-made iPhone would be more than double the current level. That would leave AAPL in the position of eating the cost (currently estimated at $225 for an entry level iPhone 7) and giving up its fat profit margins — or boosting the price of an iPhone far past the $649 it charges now.
Heck, it would be less financially painful if Apple absorbed a tariff of 45% on Chinese-manufactured goods, as has been suggested by the president-elect.
So, yes, it’s possible you may one day hold an American-made iPhone. Apple is looking into it and the demand is certainly there. But with factories to build, workers to hire, suppliers to manage and costs to wrangle down to acceptable levels, it’s not going to be the iPhone 8.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.