Apple Inc.’s (AAPL) Manufacturing Problem Is a Recipe for Political Poison

There has been a lot of talk about moving high-tech manufacturing jobs back to the U.S. in recent months. Bringing manufacturing back to America from China was a key part of President-elect Donald Trump’s campaign.

Moving iPhone manufacturing to the U.S. has been raised as a possibility by Apple Inc. (NASDAQ:AAPL).

But based on what’s going on with the company’s foundering Mac Pro, the idea of an American plant churning out new Apple products seems more far-fetched than ever.

The Mac Pro Problem

Before it sold iPhones, iPads and iPods, Apple was a computer company. It still sells Macs, and while it’s no longer its primary product, Macs still account for more than 10% of its total revenue.

And of all the Macs, the flagship model is the Mac Pro. This is the PC that’s aimed at the highest-demand users; the computer that’s historically found in professional studios, powering the most demanding tasks in the creative workspace.

And, boy, is it expensive. The cheapest model is $2,999 (the only thing in the box besides the PC itself is a power cord) and a maxed out version approaches $10,000.

It’s also over three years old.

Apple introduced the current Mac Pro in 2013. Since that time, Intel Corporation (NASDAQ:INTC) has released several new generations of processors. The AMD FireProD-series graphics cards from Advanced Micro Devices, Inc. (NASDAQ:AMD) that the Mac Pro comes equipped with are also three years old. The base 256 GB of PCIe flash storage in a $3,999 version of the Mac Pro is the same amount you get in Apple’s $1,299 MacBook.

In a time when most computers get a yearly refresh, Apple has let its flagship Mac Pro sit for 1098 days and counting. And it’s charging a premium for an antiquated PC.

That sends a message to Apple computer buyers, and it’s not a good message.

Mac Pro: Made in America

When Apple released the new Mac Pro back in 2013, it did so with considerable fanfare. Not just because it was launching an all-new flagship PC that looked like nothing else on the market, but because it was made in America. The company actually built the Mac Pro at a plant in Austin, Texas, as part of a $100 million investment in U.S. manufacturing.

However, that move may have backfired. In a report published by Bloomberg, the U.S. plant — which required customized tools and training of workers — is blamed for slow production that left AAPL unable to meet demand.

The situation is bad enough that when it comes to a potential replacement for the Mac Pro, “some Apple engineers have raised the possibility of moving production back to Asia, where it’s cheaper and manufacturers have the required skills for ambitious products.”

Manufacturing challenges are not the only reason AAPL has abandoned its professional PC for so long. But there are lessons here for those who would like to see Apple move iPhone production to America.

The company has looked into the possibility. It actually commissioned its Chinese iPhone manufacturing partner, Hon Hai Precision Industry Co., Ltd (OTCMKTS:HNHPF) — better known as Foxconn — to look into setting up iPhone factories in the U.S. to replace Chinese production.

The results of that exercise were not positive.

There are serious barriers to launching a new high-tech factory here. Besides the initial time required to build and equip a factory, finding a workforce with the right skill set would be difficult. The supply chain would be a nightmare. Currently, most iPhone parts are made by Asian companies and transported to Foxconn for assembly.

Lacking American counterparts, they would need to be shipped overseas — adding cost and considerable delay. And then there are wages. The reality is that Foxconn can pay its employees a fraction of what Apple would have to pay skilled workers in U.S. factories.

It’s difficult to imagine an iPhone made stateside that had the same quality, came anywhere near the current $649 starting price and still allowed AAPL to reap industry-leading profit margins.

Bottom Line

Apple’s PC business is suffering and the Mac Pro has become more than an embarrassment, it’s a not-so-subtle message to long-time Mac customers that their business isn’t valued.

Fixing the Mac Pro problem and winning back its loyal PC fans, however, might involve abandoning its made-in-America strategy — at a time when that is political poison.

The challenge AAPL has faced with the U.S. manufacturing of this generation’s Mac Pro is a stark reminder of how badly things could go off the rails if it were to bow to political pressure and move iPhone manufacturing here.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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