Pegatron confirms it can build the iPhone in the US, assuming Apple picks up all the costs...

Posted:
in iPhone edited March 2017
After a few months of revenue boosted by Apple production demands, manufacturing partner Pegatron's CEO says that the company could build the "iPhone 7s" and "iPhone 8" in the U.S. if it is asked to -- but Apple would have to shoulder all of the company's costs for doing so.




"As long as there is demand, whether the clients are American or Chinese, Pegatron already has its production lines in place," Pegatron CEO Liao Syh-jang said at an investor's conference to Focus Taiwan. "If Trump institutes his Made in America proposal, it will be fine for Pegatron as long the client is willing to absorb the costs."

Also at the conference, Liao reported that the company is pessimistic about revenue for the next few months, citing a weak laptop market as the major reason.

The production shift remarks echo similar ones the company made in January, but implies that a larger scale ramp-up is possible. At that time, Pegatron chairman TH Tung said that three to five times the manufacturing capacity could be added to its U.S. locations, but would have little impact on either the workforce, or Apple's total demand for the iPhone.

Neither the California or Indiana U.S. Pegatron facilities assemble goods for Apple at this time. Primary customers are HP and Dell. The companies also provide on-site service for some products in the areas that they serve.

When then-Presidential candidate Donald Trump threatened various countermeasures against companies building products overseas, and importing them, rather than relying on U.S.-based manufacture, Apple requested an impact statement from both Foxconn and Pegatron should a move be required. Foxconn developed a plan, and Pegatron reportedly did not, citing costs of the effort.

Trump's campaign promised a 35 percent tariff levied against products like the iPhone manufactured overseas. The plan, published in June, presumably will give companies a significant economic incentive to bring manufacturing jobs back to the U.S. if passed.

"To make iPhones, there will need to be a cluster of suppliers in the same place, which the U.S. does not have at the moment," Apple Chief Executive Tim Cook said in an Dec. 2015 interview about a possible shift. "Even if Trump imposes a 45 percent tariff, it is still possible that manufacturers will decide to continue production overseas as long as the costs together with the tariffs are lower than the amount they need to spend on building and running production lines in the U.S."

Assuming Apple has one phone priced at $700, the taxable income on the phone in the US is $280, because of production cost deductions and other factors generating $98 in tax for the U.S. at present rates.

Apple's expected overall tax rate is expected to fall to 20% versus the current 35% as a result of the Trump administration's tax reform "blueprint."

After reform, If the phone were manufactured in the US, the taxable income remains the same at $280, but the lower effective tax rate drops the owed taxes to $56. If the iPhone continues to be manufactured in China, the entire $700 is taxable, but at the lower 20%, ending up in an effective tax on the phone of $140.

How much labor and other costs associated with developing the supply line the U.S. would impact the phone production costs in the U.S. is not clear, but given corporate resistance to the idea, exceeds the difference in savings from the new tax proposal.

Regardless of the source of the cost increase, be it the expense of moving manufacture of the iPhone to the U.S. or keeping production overseas, any cost increase would likely be applied to consumers.

Comments

  • Reply 1 of 13
    The headline is a bit misleading, suggesting apple pays for everything. Reading the actual quote they're simply saying the costs of manufacturing in USA would naturally be greater (taxes, wages, more stringent safety standards to adhere to etc.) so cost to clients would be greater also, nothing more than that which is common sense anyway surely.
    edited March 2017
  • Reply 2 of 13
    williamhwilliamh Posts: 677member
    After a few months of revenue boosted by Apple production demands, manufacturing partner Pegatron's CEO says that the company could build the "iPhone 7s" and "iPhone 8" in the U.S. if it is asked to -- but Apple would have to shoulder all of the company's costs for doing so.


    Regardless of the source of the cost increase, be it the expense of moving manufacture of the iPhone to the U.S. or keeping production overseas, any cost increase would likely be applied to consumers.

    They could build iPhones on the moon if someone would cover the costs. And it's not that a cost increase would likely be applied to consumers. The cost increase would definitely be applied to consumers. One of the fundamental rules of business is that, in the end, the customer pays for everything. ( or "There's no such thing as a free lunch.")
    king editor the grateMacsplosionStrangeDays
  • Reply 3 of 13
    macxpressmacxpress Posts: 5,001member
    Hell I could build Apple's entire lineup in the US.....as long as Apple paid for it! If Apple has to pay for most things, they might as well operate their own facilities. 
  • Reply 4 of 13
    designrdesignr Posts: 540member
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
  • Reply 5 of 13
    quadra 610quadra 610 Posts: 6,746member

    Pegatron confirms it can build the iPhone in the US, assuming Apple picks up all the costs...


    Translation:

    Pegatron confirms it will not build the iPhone in the US...

    MacsplosionRayz2016stantheman
  • Reply 6 of 13
    foggyhillfoggyhill Posts: 4,767member
    This is a dumb ass headline, except if its to put political pressure on Apple, then I'd say its a bad move from Pegatron and likely to piss off Apple.

    There is a massive amount of  logistic and human resource issues that would be linked to that because Apple's whole supply chain is not in the US and never likely to be!
    That means this thing would need to be built close to a port (on top of it), likely in southern California if it ever existed.

    What city around there has hundreds of thousands of qualified workers available for a few months that then can be layed off? Those companies in Asia can just transfer those people to another phone maker's phone down there (or whatever consumer electronics). The human resource in SOCAL is not adequate for that which means only a fully roboticized manufacture would be possible.

    This later thing is possible long term, but most of the components would likely come from Asia anyway so what's the point.for this plant that would cost tens of billions of dollars. Will Apple start producing toasters half the year to occupy this plant?
    edited March 2017 stantheman
  • Reply 7 of 13
    zoetmbzoetmb Posts: 2,491member
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    It's not a fetish.  It's about providing decent jobs for working class people.   I don't agree with virtually anything Trump wants to do and taxing imported products could be counter-productive because other countries will add taxes to U.S. manufactured goods, thereby decreasing exports and hurting American businesses.   It will also raise the price of goods for the very people such policies are trying to help.  Having said that, I've always felt that manufacturing should take place as close to the markets they serve as possible so that the people who buy the products also have the benefit of the associated jobs and local spending.   On the other hand, should factories return to the U.S., they are likely to be highly automated and not provide all that many jobs.  Even in China, Foxconn has supposedly started automating their manufacturing lines and has allegedly laid off something like 30,000 workers. 
     
    Now it just so happens that U.S. manufacturing output reached a peak last summer, so it's a myth that we don't make anything anymore, but employment in manufacturing is way down because of automation and productivity improvements.   

    The fact is that companies can't go on paying paltry wages and doing little new hiring and expect their products and services to sell well.    In the past, there was an unwritten pact between industry and workers that there would be a large supply of middle-class jobs.   You wouldn't be rich, but people could afford a semi-decent place to live, a car or two, put food on the table, afford healthcare and be able to send their kids to a state college.   That's how the U.S. became a superpower after World War II.   Too many people can't afford most of those things today and IMO, that's a big problem.   

    I do have to wonder what happens 50 years from now, when we'll probably have fairly intelligent robots taking over many types of jobs.   Certainly there will be new industries to support robotics and artificial intelligence, but I don't think we're going to fare too well if the masses don't have work.   Right now, it's service industries that provide much employment, but even many of those jobs will be gone if we're successful at producing multi-function robots.   Somehow, I don't see that world providing jobs the way that the industrial revolution did. Companies can't just go on trying to be as efficient as possible and paying the lowest wages possible and expect to be successful in the future when economies crash.   We've already seen what has happened during a major recession (although Apple did pretty well during that recession.)  
    StrangeDays
  • Reply 8 of 13
    williamhwilliamh Posts: 677member
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    On the one hand - these are the very sorts of jobs that Americans don't want to do.

    But on the other hand, the US has a lot of unskilled idle people.  Who give a f#[email protected] what they want to do, they ought to do something.  The problem is that such people are not productive, probably not worth the minimum wage,  and Foxtron/Apple isn't accustomed to costs anywhere near that high.  More of the manufacturing is taking place in countries without a huge social welfare apparatus - people take the jobs if it's the difference between eating and not eating.  That's just not the case for many people in the US.
  • Reply 9 of 13
    afrodriafrodri Posts: 190member
    williamh said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    On the one hand - these are the very sorts of jobs that Americans don't want to do.

    But on the other hand, the US has a lot of unskilled idle people.  Who give a f#[email protected] what they want to do, they ought to do something.  The problem is that such people are not productive, probably not worth the minimum wage,  and Foxtron/Apple isn't accustomed to costs anywhere near that high.  More of the manufacturing is taking place in countries without a huge social welfare apparatus - people take the jobs if it's the difference between eating and not eating.  That's just not the case for many people in the US.
    I think there is an issue with 'fetishizing' the assembly stage of production, particularly for iPhones. Media pundits like to say the iPhone is 'Made in China' and point to how this is a sign of China overtaking the US, but really the phone is just assembled there. The assembly step is estimated to cost 1-1.5% of the total cost of the phone, so the undue focus on it is counterproductive. The important (i.e. expensive) parts of the phone generally don't come from China, and the most important 'part' the R&D for the phone mainly comes from the US.  So, while I agree with your point, I do think there is an undue focus on the assembly stage.

  • Reply 10 of 13
    eightzeroeightzero Posts: 2,504member
    williamh said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    On the one hand - these are the very sorts of jobs that Americans don't want to do.

    But on the other hand, the US has a lot of unskilled idle people.  Who give a f#[email protected] what they want to do, they ought to do something.  The problem is that such people are not productive, probably not worth the minimum wage,  and Foxtron/Apple isn't accustomed to costs anywhere near that high.  More of the manufacturing is taking place in countries without a huge social welfare apparatus - people take the jobs if it's the difference between eating and not eating.  That's just not the case for many people in the US.
    Some interesting stats on that. Historically in the US, the male age group of 18-25 or so was the most productive part of the workforce. Many high school graduates moved into trades, manufacturing, agriculture, and similar pursuits, were immediately affordable and productive. The employment rates for this segment were always high. In the last few decades though, this has not been the case. Large number of kids simply dropped out of the workforce, and essentially do nothing but live in their parents house and become further disengaged from productive pursuits. (not my words or opinion, just reporting the stats I recall.) They become the long term (many decades of their lives) impoverished.

    You can make disparaging comments about this activity and why it is occurring, but it is undeniably happening. Say what you like, but America is indeed the land of opportunity. It seems some people that have the opportunity to do nothing do exactly that.
  • Reply 11 of 13
    SpamSandwichSpamSandwich Posts: 31,504member
    Surely people have noticed that other countries require hiring local labor and/or using local manufacturing for companies that want to enter their market space to sell products? All countries do this already, but AFAIK the US hasn't enforced this as much as other countries.
  • Reply 12 of 13
    boredumbboredumb Posts: 1,417member
    If enough companies do this, it'll make some shipping companies pretty unhappy, whatever other financial changes result.
  • Reply 13 of 13
    designrdesignr Posts: 540member
    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    It's not a fetish.
    Yes it is.


    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    Having said that, I've always felt that manufacturing should take place as close to the markets they serve as possible so that the people who buy the products also have the benefit of the associated jobs and local spending.
    Yes, many people feel this way. But it's still a fetish.


    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    Now it just so happens that U.S. manufacturing output reached a peak last summer, so it's a myth that we don't make anything anymore, but employment in manufacturing is way down because of automation and productivity improvements.
    Yes, and that's a good thing. Increases in productivity creates increases in wealth. We want more and more of that.


    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    The fact is that companies can't go on paying paltry wages and doing little new hiring and expect their products and services to sell well.
    Companies will never pay people more than their marginal productivity to the company. Period. This productivity can be improved by process, education, training and, usually capital (equipment, etc.) The way to higher wages is to become more productive. That's the equation. Want to help people (yourself or others) to earn more and gain more wealth? Do something to help them become more productive at something. Teach them. Train them. Help businesses become more productive. Invent new tools to enable people to become more productive. That's the equation. That's the path to higher wages and greater wealth.


    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    In the past, there was an unwritten pact between industry and workers that there would be a large supply of middle-class jobs.
    No there wasn't.


    zoetmb said:
    designr said:
    What is with this fetish about things being made (assembled) in the U.S.?!

     :/ 
    I do have to wonder what happens 50 years from now, when we'll probably have fairly intelligent robots taking over many types of jobs.   Certainly there will be new industries to support robotics and artificial intelligence, but I don't think we're going to fare too well if the masses don't have work.   Right now, it's service industries that provide much employment, but even many of those jobs will be gone if we're successful at producing multi-function robots.   Somehow, I don't see that world providing jobs the way that the industrial revolution did.
    This basic prediction has been made (and been wrong) so many times it's laughable and even more laughable that anyone still makes it. People always say "this time it's different." That's extremely doubtful.

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