Pegatron confirms it can build the iPhone in the US, assuming Apple picks up all the costs...
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.
"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
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.")
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...
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?
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.)
But on the other hand, the US has a lot of unskilled idle people. Who give a f#$@ 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.
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.