Apple’s U.S. iPhones Can All Be Made Outside of China If Needed

https://www.bloomberg.com/news/articles/2019-06-11/hon-hai-has-enough-ex-china-capacity-to-make-u-s-bound-products

by jason_zig • 7 years ago

122 158 7 years ago

jdhn• 7 years ago

Obviously they can be made outside of China. What Wall Street would care about is whether or not the assembly cost would be raised, and how Apple would deal with that (pass the additional cost onto the customer, or take the hit and absorb a little/all of the added cost).

morpheuskafka• 7 years ago

I think you could really sell it as a valuable risk management strategy, even if it does slightly raise costs.

chrismeller4• 7 years ago

I find that a hard sell to the average consumer. We’re talking people who plaster social media with every detail of their lives already... voluntarily... for free. Do you really think it ever even crosses their mind once where any of it was made, let alone what the consequences of that might mean?

Not that there couldn’t be some kind of compromise where they offer a “pro” model specifically assembled outside of China... I’m thinking a “Blackberry is for serious business” kind of campaign.

While there would no doubt be some serious money available from that market, that’s never been Apple’s MO, so it would be a major shift for the company and would likely skew their mojo. I mean that’s something IBM would do...

save_ferris• 7 years ago

Especially given that Apple has significantly raised prices on new phones over the last few years already. I'm no economist, but there must be a limit to how much Apple can keep raising prices while still maintaining the same or similar revenue.

Retric2• 7 years ago

This actually reduces the impact of higher construction costs. If a 1000$ phone with a 300$ profit margin needs say 3 hours of labor to create it’s not that important if the labor is 2$/hour or 20$/hour.

Further, higher construction costs would quickly push automation which is almost competitive at China’s labor rates.

djsumdog2• 7 years ago

Would they really raise prices though? They have $800 billion. They're still the 3rd largest company on the planet. They charge $1000 for their flagship. They could probably easily eat that cost, still generate profit (although less profit) on the hardware and still spin that to make their shareholders happy.

Their phones are already at a premium and there is a diminishing return on customers if they keep hiking prices.

mruts2• 7 years ago

Growth of Iphone sales has stagnated, making Wall St more than a little upset. I suspect this is why we are seeing more investment in the Mac Pro, the Ipad, and OSX after being ignored for so long.

I doubt Apple would be willing to lower their profit margins in such an environment. Apple’s P/E is already well below the S&P 500 (16 vs 21) and I don’t think they want to slip into value territory any time soon.

solarkraft2• 7 years ago

although less profit

You mentioned the problem.

Maybe they could eat a few % with some spin, but I'm not sure shareholders would be okay with much more.

hrktb2• 7 years ago

Obviously they can be made outside of China

From what I understand, this is not so obvious.

There is a ton of parts that only Chinese manufacturer produce at scale, and I wonder if some of them can even be produced elsewhere at any reasonable price in a reasonable time frame (if it takes 10 years to rebuild a factory elsewhere, or if it's only produceable at CERN, I'd conclude it's not an option)

Do we have any single example of a high scale computing product produced without any Chinese part at this point ?

baybal23• 7 years ago

Well, Japanese domestic market stuff? Panasonic and Toshiba take pride in sourcing almost all, but ram and chipset from Japan for their notebooks.

I once had an opportunity to take apart an RZ series, and to my amusement, even capacitors and other passives were Japanese. I never expected Japanese electronics to still be around in 2018.

sbov• 7 years ago

Note that there was an article a while ago that claimed that assembling the iPhone in the USA would cost an extra $30-40, and that was mostly due to logistics.

So I would guess the extra cost would be less than that. You probably aren't talking about much difference here.

https://www.technologyreview.com/s/601491/the-all-american-i...

Operyl• 7 years ago

Note: Unlike what some people will think at first thought, these iPhones are still not likely being made in the US. They're going to invest further into their factories in India.

dvduval9• 7 years ago

Sure, to the next "Huawei" stealing our secrets will come out of India. At some point we have acknowledge that cell phone can be made anywhere, and the people making them will surely create their own companies. It is the natural end game.

duxup3• 7 years ago

Just for everyone in world's sake / security it would seem to be a good idea to spread manufacturing out all over the world.

Hopefully we see more of that.

throwayEngineer• 7 years ago

It's really expensive to build new production facilities.

These trade wars benefit the lucky rather than those willing to change.

Not every company can afford to create a new manufacturing environment, Apple is Priced luxury so their margins are high enough to compensate.

duxup3• 7 years ago

Certainly not easy, but if we see Apple and others do it I expect it provides some cost savings / patterns for the next wave (if any of it happens).

hurrdurr22• 7 years ago

That's what manufacturers are already doing...moving production to places like India and Vietnam.

What's interesting to me is once the trade imbalance with Vietnam tips over to their favor what will the US do. Also it's not like Vietnam is some democratic wonderland in terms of their government.

duxup3• 7 years ago

it's not like Vietnam is some democratic wonderland in terms of their government

They're not but I don't think the form of government is the key factor as much as how trade works on the ground with China.

Vietnam IMO would likely be more than receptive to lots of new business, possibly making a point not "be like China" in order to assure such business.

artificial2• 7 years ago

Fascinating that business is being done for western countries in communist countries. Ideologically it's curious that there isn't more of a demand from consumers, evidently this underlines how important cost is.

Shivetya• 7 years ago

I think Apple should stand by their human rights mantra and move their production out of China. It should not be a question of where they are sold, the only question a company with their supposed rights advocacy is where they are produced.

China has shown they do not value world opinion.

dvduval9• 7 years ago

About 850 million people have lifted themselves out of poverty in China since the eighties. It's extraordinary. Just want to be clear the US is not exactly perfect when it comes to human rights. Sure, China had a lot they need to do better, but the improvements are incredible. In the US, look at Indian reservations, border detentions, hate groups, number of people in jail... We are not the human rights poster child.

threezero• 7 years ago

I’m not sure I’d call China running over people with tanks and imprisoning millions of Muslims in concentration camps “improvements”.

javagram• 7 years ago

“hate groups” exist in the USA because this is a free country. In places without our commitment to freedom and human rights those type of groups would have been suppressed by the government.

Edit: just to be clear some of your other points are fair although I find the “Indian reservations” a bit dated - they are treated as local sovereigns (e.g. casinos, being allowed to violate state level hunting regulations) and are even now being allowed to expand their territory in some places .

flattone2• 7 years ago

Yes we are.

ralusek2• 7 years ago

850 million people have been lifted out of poverty by going through an accelerated industrial revolution similar to what lifted the West out of poverty, largely funded by the West outsourcing the labor its citizens' expectations for quality of life would no longer allow.

kortilla5• 7 years ago

China doesn’t have Indian reservations because it just forces integration or kills ethnic groups not approved by the government. The government itself functions as a massive hate group against Muslims. It just has a monopoly on which hate groups get a voice.

legulere• 7 years ago

A lot of stuff missing on this list: death penalty, war crimes, mass surveillance of the whole world including industry espionage

jdavis703• 7 years ago

Moving production back to the U.S. would not solve the human rights issue. The UN has called out the homeless crisis that’s right in Apple’s backyard as being a human rights violation. Other commentators compare ICE detention centers to concentration camps or chastise the high number of prisoners the U.S. has even outside of ICE detention centers.

Clearly no country is perfect, but if Apple were to relocate production based on human rights, it seems like a Northern European country would be the most appropriate place.

artificial2• 7 years ago

This isn't an apples to apples comparison. I'm curious what the UNs solution is to homelessness?

rhacker• 7 years ago

Why not to the US, wouldn't that help solve the homeless problem? If ALL countries that were hiring outside right now started hiring here, wouldn't that help?

kortilla5• 7 years ago

People that compare ICE detention centers to concentration camps are Holocaust deniers. Do you know what a concentration camp is?

bilbo0s2• 7 years ago

Moving production back to the U.S. would not solve the human rights issue...

You didn't read the fine print. They're not even talking about moving production to the US. Which only makes the idea of solving human rights abuses by moving even more puzzling?

I mean, Hon Hai capacity is in nations with human rights abuses for a reason.

Fjolsvith8• 7 years ago

Other commentators compare ICE detention centers to concentration camps

I find it hard to draw a line between the human rights violations of the Muslims by China and detaining Central Americans for illegally crossing the US border.

hindsightbias• 7 years ago

Now why hasn’t Foxconn opened facilities next to the ICE camps?

It would be like killing three birds with one stone.

lern_too_spel4• 7 years ago

To more directly address the human rights issue, they should not give the iCloud keys and data of Chinese users to a company controlled by the Chinese government.

https://www.amnesty.org/en/latest/news/2018/02/5-things-you-...

dvduval9• 7 years ago

Imagine if that were reversed: A Chinese company refused to give the US government access to the accounts of Americans. Would you protest?

bilbo0s2• 7 years ago

I think Apple should stand by their human rights mantra and move their production out of China...

I think you've misapprehended what the article is saying. It's saying that Apple can produce iPhones, intended for consumers in the US, outside of China.

Now I think we can safely infer from that statement that it's possible for Apple to produce any iPhone outside of China.

What we cannot infer from that statement, is that Apple can produce iPhones in places with no human rights violations.

I mean, moving iPhone production from China, to Vietnam, Myanmar, or Malaysia, for the purposes of making a stand against human rights violations is a bit of a head scratcher. But if all we need to do is move out of China, but not necessarily avoid human rights abuses, then it works.

graeme• 7 years ago

Still not quite it. US iphones are not all iphones in the world. Foxconn is not claiming that world iphone capacity could be moved out of China. Nor is it claiming that iphone R and D can be moved out of China.

peteretep2• 7 years ago

China, to Vietnam, Myanmar, or Malaysia

One of these is not like the others

ulfw2• 7 years ago

China has shown they do not value world opinion.

So by that definition they'd obviously not be able to move production to the United States of America either.

aclsid2• 7 years ago

Taking that moral stand should also go for other things I believe, like not buying oil from Saudi Arabia and as a consumer, demanding to know where the gas you are using is coming from so you could make an informed decision.

jokoon• 7 years ago

Does that include rare earths?

This article says China hold 97% of rare earth's production:

https://en.wikipedia.org/wiki/Rare_earths_trade_dispute

Anyway, that's an important argument made to make durable phones, and with lightweight software so that you can do more with less. I wish there was some durability review on products so that consumers can understand what companies do to make products have a limited lifespan.--

peaktechisnow• 7 years ago

That stat is wildly out of date -- its closer to 80%.

https://www.usgs.gov/centers/nmic/rare-earths-statistics-and...

There are operational mines in the U.S. and Australia (among others) and processing facilities in Estonia, Malaysia, and 3 processing facilities under construction in the US.

DoD has begun creating large stockpiles, adding >400 metric tonnes per year.

HeXetic• 7 years ago

My understanding of the rare earths issue is that the reason China controls that much of the production is because all the extraction & production elsewhere shut down due to an inability to compete with China's prices. You basically have to open pit enormous areas to get any quantity of them.

If the global rare earth prices rise enough, or if China continues to try to manipulate its exports to ensure that products using rare earths are manufactured within its borders, then mines eleswhere will open.

dgemm• 7 years ago

Mothballed facilities like the mountain pass mine are already reopening.

Whatarethese• 7 years ago

I really wish shareholder would sacrifice a little profit to allow these to be made in the states. So many US jobs.

friedman23• 7 years ago

that is just not how it works

Mediterraneo10• 7 years ago

Manufacturing in China uses large numbers of human beings because labor is cheap there. Manufacturing in the USA strives to use minimal human involvement through automation because of the high cost of labor there. Companies moving production of goods back to the United States will not necessarily add a significant amount of jobs.

swagasaurus-rex• 7 years ago

No but the jobs created will be American, feed american families, and those job skills can be transferred to create other American businesses.

I'm so glad I did not choose mechanical engineering as a college major, and instead opted for Computer Sciences. I wasn't around during the 70s and 80s but it appears the jobs in the engineering field has dried up.

Programming appears to be the only field that has resisted globalization, and even then there is still massive offshoring.

hurrdurr22• 7 years ago

If you thought iPhones are expensive now how much do you think they will be built with American labor? How many Americans do you think will want those jobs building iPhones almost nonstop for up to 12 hours a day?

anchpop• 7 years ago

It would be closer to 5 Americans working as security guards to keep anyone from breaking in and damaging the robots

Amezarak• 7 years ago

At most about $100 more than they cost now.

https://www.technologyreview.com/s/601491/the-all-american-i...

At any rate, I think at some point we need to stop looking at the economic argument and do what's best for US labor, US citizens, and human rights/health/the environment worldwide. Just how much are cheap electronics worth?

ulfw2• 7 years ago

Not every Apple customer is US American

mruts2• 7 years ago

Well you could get to vote on it by becoming a shareholder. Though, once you became a shareholder, I think you would change your mind on this particular point.

Moreover, Americans don’t want these jobs in the first place. Working in factories isn’t the future of labor in America, and we as a society really need to stop fetishizing this kind of “honest” blue collar work.

chrismeller4• 7 years ago

So this is “made”, not made... assembled somewhere that is not China (so India), but there’s no mention of where all the components they’re assembling are being produced at.

The most recent estimate [1] I could quickly find valued the iPhone X at $600 in components alone (excluding assembly), so any trade war would seem to still be incredibly perilous for Apple, especially on their lower-end products.

I haven’t been following any of this, so perhaps they covered it in another story, but for Bloomberg I really expected a bit more of an in-depth analysis.

1: http://fortune.com/2017/09/18/apple-iphone-x-margins/

H8crilA2• 7 years ago

Components are not made in China, at least mostly. Chips are from tsmc for example. Mainland China is responsible for the final assembly.

chrismeller4• 7 years ago

According to the link another commentor replied to my comment with, which includes the actual per-component cost breakdown, the most expensive part is the Samsung display. Where is that manufactured? Well, in 2017 Samsung was planning the world’s largest plant in... you guessed it... China.

Even if some details or price estimates are wrong, the fact that they are dependent upon a third party for the most expensive component with no obvious alternative is a problem.

dirtyid3• 7 years ago

CTRL+F through Apple's supplier list:

https://www.apple.com/supplier-responsibility/pdf/Apple-Supp...

China (381) India (9) US (65) Japan (135) Korea (41)

Outsourcing to India will follow the same trend as other Chinese OEMs doing final assembly in India to circumvent 20% import tariff on phones. Most of the materials are still going to be procured from Chinese supply chains.

eugeniub• 7 years ago

Here’s a widely circulated article from 2017 that found the iPhone X components to cost only $370: https://amp.businessinsider.com/iphone-x-teardown-parts-cost...

chrismeller4• 7 years ago

That’s still a significant percentage to now be dependent upon a country that could end up with huge tariffs. I enjoyed their actual breakdown of price by component, but I wasn’t so much concerned with the actual number... just that being “made” elsewhere was all the mattered.

baybal23• 7 years ago

Component cost guesstimates are not a precise science as more and more components are not sold on open market.

For example, I was astonished when a $1000 IHS report called iPhone 4 battery at ~$10 when the retail price of a replacement is less than that.

iPhone 3 was certainly around just $30 to $40 dollars in cost, but after that, the "arms race" began.

At around iPhone 4 era, all big makers began putting more and more custom and direct sourced components, and estimating costs got much harder.

cronix• 7 years ago

But can they make any products at all without Chinese Rare Earth materials? Production is at the end... I believe that is the Ace in the sleeve. Just jack the price of rare earth minerals 1000%, or temporarily halt production. It won't matter what country they are manufactured in if you can't get all of the parts you need, or get them economically...

jpollock• 7 years ago

This is about avoiding US import duties, not avoiding Chinese export bans.

EliRivers• 7 years ago

Here's the register talking about the last time China decided to flex their rare earth monopoly; https://www.theregister.co.uk/2015/09/02/western_worlds_only...

Here's the same commentator more recently; https://www.theverge.com/2019/5/23/18637071/rare-earth-china...

Basically, yes, you can make them without Chinese rare earths, and it won't break the bank. You can just dig them up and process them elsewhere.

_ptgt• 7 years ago

Rare earth metals are not as rare as their name suggests, and there are plenty of mines outside of China capable of meeting demand for them. There hasn't been sufficient motivation to tap those mines yet, but that if there's money to be made (i.e. Beijing limits supply) then those mines will be up in a hurry.

The threat isn't empty but it's not really a trump card either.

This is all based off what I've read on the topic from mainstream news sources. I'm not an expert in this area.

_iyig• 7 years ago

Yes. The U.S. can reopen the Mountain Pass mine, as was previously discussed on HN:

https://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine

https://news.ycombinator.com/item?id=20055069 (Submission looks flagged now for some reason?)

briffle• 7 years ago

Most other rare earth mines closed up because they couldn't compete with China's price (which was rumored to be HEAVILY subsidized to corner the market) if you increase the price of rare earth minerals 1000%, you will quickly see many of those mines re-activate, as they are now profitable to run.

For example: https://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine

_emacsomancer_• 7 years ago

Perhaps assembled outside of China using Chinese components.

amelius• 7 years ago

How about components for Desktop PCs?

Or will a trade war with China force everybody to buy Apple products?

dirtyid3• 7 years ago

Since the article suggest the pivot will be to India, keep in mind that India is speculated to be the next US trade war. In the last two weeks India has been removed from the preferential trade agreement and threatened with sanctions via Countering America’s Adversaries Through Sanctions Act for possible Russian S400 acquisition.

jepler• 7 years ago

vs https://www.nytimes.com/2019/01/28/technology/iphones-apple-... "A Tiny Screw Shows Why iPhones Won’t Be ‘Assembled in U.S.A.’"

pwinnski3• 7 years ago

Yes, the claim is "outside of China," not "in the USA."

baybal23• 7 years ago

They can manufacture electronics pretty much anywhere, but they will still have to haul all parts from China.

mensetmanusman• 7 years ago

There would be massive global environmental benefits moving the supply chain to western countries. These devices should be more expensive, the hidden cost is in killing the next generation because humanity isn’t handling industrial waste properly (because we outsourced the problem to China.)

Apple’s U.S. iPhones Can All Be Made Outside of China If Needed

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