Apple will invest $100 million to bring Mac production back to the US next year
thenextweb.com
thenextweb.com
The idea being that manufacturing was pushed abroad due to the appeal of cheaper labor, without a deep consideration of hidden costs or the overall context of such a transition.
GE, which is featured extensively in the article, actually managed to reduce manufacturing costs by bringing the fabrication of a water heater and other appliances back to American shores — largely due to the faster loop and better communication between designers, engineers, and laborers who all speak the same language and are in the same factory.
It's made manufacturers seriously consider Africa as a low-wage manufacturer, but unlike some of the Asian countries, they do not have the political stability to enforce contracts.
As automation gets cheaper I expect more and more manufacturing that really did move to not just come back to the US, but also new manufacturing to set up shop. Shipping costs are expensive and it only makes sense to be as close to your customers as possible. The one exception to this trend will be manufacturing that is inherently 'dirty.' Those will continue to be overseas until countries like China decide that destroying their environment for a short term gain isn't a very good long term strategy.
So, as in these articles, sometimes manual labor is cheaper than automation, but we may have reached a point where wages have 'normalized' enough throughout the developing world that the variance is not significant enough to make manual labor economical.
What are the billions of people in developing nations (south Asia, Africa) going to do for a living, if their infrastructure and economies have not matured enough to sustain their own 'homegrown' industries?
I mean, outsourcing was seen as detrimental to our economy, but this phenomenon also had an impact in pulling millions of people in dev nations out from arduous agrarian and other subsistence activities.
As 'unhealthy' as the city job might be, the alternative in the countryside is, for many people, worse. It's a life of a kind of feudalism.
Uh, figures?
It is one thing to say the US remained a manufacturer but to say the US didn't offshore a significant portion of its manufacturing capacity would seem to be an extraordinary claim which requires evidence, right?
The proportion of consumer goods I see which are marked "made in China" today approaches something like a hundred percent. Sure, there are other significant USA industries that produce a lot (and naturally have increased their output via automation) but it seems badly-spoken to say claim manufacturing leaving the US is myth. Some industries have left, "in mass", even.
As to your "make in China" - you'd have to buy many, many t-shirts or DVD players to even approach the magnitude of money going around in making, for example, Caterpillar construction equipment or BMW X5's.
That is wrong no matter how you measure US manufacturing output.
The difference is that China makes tons of duplicate copies of cheap goods, while America makes high value, lower run, complicated goods.
Which is why if you look only at consumer good you get the mistaken assumption that manufacturing is leaving the US. Try sourcing $100,000 machines and all of them are made in the US.
-Not exact figures.
http://seekingalpha.com/article/602691-u-s-manufacturing-lea...
Per capita. But not even close on an absolute basis - the US makes more than twice as much as Germany.
http://www.ourfuture.org/blog-entry/2009104319/g20-manufactu...
I couldn't find more recent numbers.
The "myth" claimed by the OP was that manufacturers have left the US. That is not a myth despite the US remaining a top manufacturing country - because, as you say, what remained specialized, high-value items (planes, chemicals).
A large number of particular manufacturers left the US.
http://seekingalpha.com/article/602691-u-s-manufacturing-lea...
From 2011:
http://www.newsday.com/news/nation/u-s-still-leads-world-in-...
Yet America remains by far the No. 1 manufacturing country. It out-produces No. 2 China by more than 40 percent. U.S. manufacturers cranked out nearly $1.7 trillion in goods in 2009, according to the United Nations. The story of American factories essentially boils down to this: They've managed to make more goods with fewer workers.
The point is that many US manufacturing industries have left.
The two points are different, especially for the workers who previously worked in those industries.
IE, the OP points that industries haven't left the US in mass. That the remaining industries are very productive is a different, etc.
Pointing to manufacturing jobs going away is an invalid metric to start. Manufacturing jobs are gone and going, but it's not something that can be stopped. Some jobs were moved overseas, but many have simply been automated away. Over time even the ones overseas will be automated away.
I'm sure when cars were invented there were closed down stables all over the place. Progress happened. Rural textile plants have left in favor of luxury car makes like BMW opening plants. Don't confuse a particular industry changing to manufacturing as a whole. The value of products produces simply doesn't show manufacturing leaving. In fact, the high dollar products are moving to the US.
http://www.wired.com/magazine/2011/02/ff_madeinamerica/
Made in America: Small Businesses Buck the Offshoring Trend
Not to be cynical, but I suspect that local, state and federal tax subsidies will yield a positive ROI on the $100 million. This looks like pure PR.
I agree that Apple doesn't need a fab. It doesn't need a manufacturing facility in the U.S. either.
[1]http://www.phonearena.com/news/Intel-wants-to-take-Apples-ch...
http://www.apple.com/pr/library/2012/10/25Apple-Reports-Four...
Quarterly. Net. Profit. That's less than 1% of their pure profit reinvested in the US. Ignoring the credits and subsidies they will get. Cry me a river.
Note two things: 1. I suspect this would be a Foxconn factory, not Apple (note how Tim Cook says "we'll be working with people"); 2. The total investment of the Foxconn factory in Brazil was 5 times bigger, so I suspect that Apple's $100m would cover only a fraction of the total investment required to build a factory in the US.
Regardless, that's good news for the American worker.
http://techcrunch.com/2012/04/01/foxconn-plans-new-iowa-plan...
Hacker News discussion [2].
[1] http://www.nytimes.com/2012/01/22/business/apple-america-and...
(cf < 10 inch tablets, Intel chips, etc)
http://www.slashgear.com/steve-jobs-secretly-very-receptive-...
That to me implies it's been in the works for longer than Cook has been in charge.
For one, the computers have a higher BOM and price, so an increase in manufacturing costs takes a smaller share of the total profit. Plus they only make 5 million computers a quarter, compared to 41 million iPhones+iPads.
iDevices are released on an annual schedule, which means delays are extremely costly (especially if they are timed for the holidays). This requires a very tight supply chain. It isn't as big a deal if the iMac slips by a month.
Finally, the market for iDevices is extremely competitive compared to desktops. Execution matters way more for iDevices and a lot more money is on the line. It is easy to experiment with iMacs because there is much less pressure in that market segment.
Of course, the number of people required will be a lot lower, so the number of jobs brought in likely won't be that large.
I've heard the supply chain argument a lot, so it might take a while, but the original reason for outsourcing, ie: low labor costs, is eventually going to go away.
Tim thinks in 1 year timeframes.
Perhaps you're internalizing and projecting too much.
That said there is nothing wrong with Apple thinking more short term.
To think a speech made to sell dreams to a group of idealistic and aspirational youths is relevant to what we're discussing right now is just plain inexperience on your part.
And that said, indeed there is nothing wrong with Apple thinking more short term. It's probably exactly why Tim Cook was chosen as CEO.
Watch the Jobs/Gates interview at '07 D5. He clearly stated he couldn't predict more than five years in this industry. Though, being able to see through five years ahead is quite a feat which he pulled often.
Manufacturing in the country seems to have bottomed out a few years ago. Since 2008 several big manufacturers have been bringing jobs back from overseas.
The plain truth is that outsourcing was probably done too fast, by too many companies. There are a lot of reasons for the new in-sourcing:
1. Chinese wages climb every year. 2. American wages especially in unionized workforces have declined as unions allow for lower starting pay. 3. Oil has gotten more expensive -- ships use oil. 4. American natural gas has gotten much cheaper -- many factories use natural gas energy. 5. Companies have better QC and time to market when producing locally.
Not all jobs will come back. Nor should they. But it's definitely happening.
In such a "partnership" (if you can really call it that), there is a constant struggle between the Chinese and the non-Chinese owners of the venture where the Chinese counterpart is trying to absorb knowhow as fast as possible while the foreign firm tries to maintain their technological leadership over their partner so that they don't get marginalized. Perhaps the benefit of such a contentious relationship has been eroded enough from higher wages and other costs that firms have started to migrate their operations back home.
* Odds are _those_ jobs _aren't_ coming back, these are probably some sort of _new_ type of job. Given Cook's operations background, I wouldn't be surprised if Apple is leveraging their cash/think different attitude to try improving the efficiency of US based work forces. It doesn't seem like Cook's style to give away a competitive advantages for the sake PR. Apple's NPS (Net Promoter Score) is already extremely high. However, if he can shave a few more dollars off assembly, that protects Apple's margins, and that feels like a very Apple-like move.
* If Apple were to leverage new manufacturing methodologies, and they have been working on that for a few years, they _would_ spin it for maximum PR. That makes them looks good, and focuses the store on job creation, not supply chain improvements. I don't think it is coincidence Cook spoke to both NBC and Bloomberg in the same news cycle.
* That said: if Cook is being altruistic... So what? Apple has tens of billions of dollars in the bank. If they wants to spend $100M on PR, I'm sure the people reaping the rewards won't care.
Stockholders will care. No way he's just being altruistic. Your other ideas are much more likely.
Jobs went on to urge that a way be found to train more American engineers. Apple had 700,000 factory workers employed in China, he said, and that was because it needed 30,000 engineers on-site to support those workers. “You can’t find that many in America to hire,” he said. These factory engineers did not have to be PhDs or geniuses; they simply needed to have basic engineering skills for manufacturing. Tech schools, community colleges, or trade schools could train them. “If you could educate these engineers,” he said, “we could move more manufacturing plants here.” The argument made a strong impression on the president. Two or three times over the next month he told his aides, “We’ve got to find ways to train those 30,000 manufacturing engineers that Jobs told us about.”
Isaacson, Walter (2011-10-24). Steve Jobs (p. 546). Simon & Schuster, Inc.. Kindle Edition.
Why?
The advantage you have in these cities (almost literally) in China dedicated to manufacturing is that almost the entire supply chain is local and very finely tuned. This is particularly true for operations that might do work for companies like Apple.
The PCB manufacturers, assemblers, chip makers, connector manufacturers, LED manufacturers, display manufactures, plastics and sheet-metal manufacturers and more, are all centrally located. If not, they are within the proximal geographic regions.
The same is true of qualified workers. Need 100,000 assemblers in a hurry? No problem. Technicians, engineers, managers, etc. Lots of them and easy to hire within days of your requirement.
In sharp contrast to this, the supply chain anywhere in the US is most-definitely not localized and highly fragmented. Virtually nothing you are going to use in electronics manufacturing is made in the US. That means that rather than your LEDs being a few hours away by truck they are three weeks away by boat --from China.
In terms of mechanical components, such as screws, well, yes, they are available in the US, of course. The problem is that they will cost more. No question about it. Because our industry, due to the need to survive, has had to focus on market segments that can pay a premium (military, medical, etc.) you can pay through your teeth to get anything made here. That's just the truth.
In terms of machining and bending metal or injecting plastics, well, it depends. If you are dealing with a unionized operation, forget it. Costs will be ridiculous. Plastics, in very large quantities, can be reasonable here. Punching and bending metal or machining metal could be plausible at a very large scale and with a very finely tuned factory.
Let's not add regulatory and tax issues to the pile.
Because of all of this and a few more data points from first-hand experience manufacturing in the US, my guess is that Apple is going to simply import pre-fabricated modules assemblies and parts. They'll have US workers bolt them together and test the finished product. You can slap a "Assembled in the US" (and maybe even "Made in the US" sticker on it and feel good about it.
Remember what Steve Jobs told Obama about manufacturing jobs coming back to the US. I don't think anything significant enough has changed since then to invalidate his statement.
Oh I am quite sure you can bound up the chassis, power supply, and perhaps the main board, and ship it off for final assembly here and still be labeled as made here.
I wonder if having a high end American made machine would win them specific contracts (vs other vendors, or vs a Chinese made iMac) -- either Buy American or security considerations.
I'd be happy paying 5-10% premium on the Mac Pro for US production from the motherboard up. I trust Intel. Knowing the provenance of the other chips would be nice too.
Quote from the interview:
And next year we are going to bring some production to the U.S. on the Mac. We’ve been working on this for a long time, and we were getting closer to it.
It will happen in 2013. We’re really proud of it. We could have quickly maybe done just assembly, but it’s broader because we wanted to do something more substantial.
Note: more than just assembly. This doesn't mean everything is going to be made on one place, but it does mean more than just slapping a case on.
It's likely a combination of lower volume, like you state, cheaper automation, rising wages and some political incentives like tax breaks, etc.
The wages don't play much role in it.
There is an article about the last Apple US factory, back when they used to make stuff here, and the guys managing it explain that it wasn't the wages that drove them to China (the extra cost would be negligible in a product's price, like a few extra dollars compared to a $500 price tag), but the economies of scale, with supplier factories for glass, metal, SSDs, parts, etc being literally next door to your factory, something that wasn't true in the US.
- upcoming changes in tax laws that remove the incentive to move jobs overseas
- IP protection. Its finally sunk in that their Chinese suppliers feed any engineering info straight to the local government.
- increasing jingoism in the United States
- realization that their current line of creating "good American jobs" through their retail chain is falling apart.
- the shine from all of the "good jobs" they created with their NC data center is wearing off.
$100 million is really chump change for this kind of investment for a company like Apple. It's about what Cook made from his first year as Apple CEO.
http://www.businessweek.com/printer/articles/85170-tim-cooks...
I'm willing to bet that the reason they're doing this is exactly the opposite. Integrating their last-stage manufacturing would be a great way of squashing those pesky product leaks from contractors.
Wonder if this is the first step towards a move across all products. It'd make sense to start with a relatively low-volume, high-margin product like the Mac.
They will still not be doing the manufacturing themselves - so there will still be contractors just that they will be a new set of US based contractors that can be better controlled because they are based in US vs China.
I'd pay $20 to see the modern equivalent of the NeXT factory for 30 minutes, from an overhead viewing gallery.
Obviously Apple wouldn't want to reveal trade secrets, but I don't think there's much secret about how Apple produces the desktop and laptop products.
Ironically the rest of his statements and the article as a whole are extremely vague. $100MM at Apple scale doesn't seem like very much and since (from the article) they won't be doing it themselves I'd love to hear more about where that money is going.
There are a handful of companies that do this work, they will partner with them, my bet is Foxconn as they already work with them. Build a facility and Foxconn will do what it does, with Americans in America. As an American, I think this is good, I wonder how successful it will be but I hope it works out well.
There are a lot of negative comments. From what Tim said it sounds like it is motivated by a desire to do some good, not just more profit. Maybe that is BS, if you can successfully do this, it knocks a few days off the time from order to delivery and that's also a huge edge. I can also see wanting to not give China so much control. I don't see it being devious though.
http://news.cnet.com/Apple-may-outsource-iMacs/2100-1001_3-2...
Sanmina (recently dropped the SCI from its name) still owns that plant in Fountain, CO. I could imagine it might be a big PR win for Apple if they revived what used to be their flagship factory in the US.
"The A5 processor - the brain in the iPhone 4S and iPad 2 - is now made in a sprawling 1.6 million square feet factory in Austin owned by Korean electronics giant Samsung Electronics, according to people familiar with the operation. One of the few major components to be sourced from within the United States, the A5 processor is built by Samsung in a newly constructed $3.6 billion non-memory chip production line that reached full production in early December."
http://www.reuters.com/article/2011/12/16/us-apple-samsung-i...
Moving a plant here doesn't equate to moving manufacturing jobs here. The traditional fear of manufacturing in the USA has been high cost of labor including possible strikes.
If plants are able to replace bulk labor with robots, and have the rest of their labor be engineering-type roles, they'll have no problem moving here.
But it won't bring thousands of jobs, maybe hundreds, although they will be better paid.
Articles you read that claim they have 100 billion (or whatever) in cash are seriously confused about how cash and cash equivalents work.
From their latest 10k:
Cash and cash equivalents $ 10,746
Short-term marketable securities $ 18,383
Long-term marketable securities $ 92,122
(this is in millions)
Long term marketable securities are basically those things that they would likely take a significant hit on if they had to actually convert to cash in a reasonable period of time.
So how does this really compare to other companies?
Let's look at google.
As of September 30, 2012, Google had:
Cash and cash equivalents: $ 16,260
Short term marketable securities:$ 29,464
Whoops. It turns out google has more actual cash than apple, and more combined short term securities + cash. Just not as much in long term investment securities.
In short: Apple doesn't really have some amazing amount of cash.
It's semantics. It's cash. Not in the literal sense that they are wallpapering the headquarters with it. But it's cash from profits they've earned, that are invested in bonds and securities, just like you are I would.
>Long term marketable securities are basically those things that they would likely take a significant hit on if they had to actually convert to cash in a reasonable period of time.
Not necessarily true. Apple holds something like $15BB in Treasuries under their LTMS holdings. These are liquid (hence the label marketable). They also own a bunch on municipal bonds and corporate debt, most of which are also extremely liquid.
The long term/short term is the maturity, and as you point out, some billions are probably treasuries, which are easy to trade (They don't break it down that I saw, Google does break it down into treasury bonds, etc).
However, some of it could be (and certainly is) instruments that they could transform into cash (hence marketable), but would take a significant loss on if they needed to do so quickly (< 90 days).
Calling that cash is simply false. Let's stick with the simple fact: If they needed to transform that 92 billion in long term marketable securities into cash tomorrow, the percent chance they will get 92 billion for it is quite low.
If they need to transform it into 92 billion in cash in the next 6 months, the percent chance they will get 92 billion for it is quite high.
Yes, it is.
I take offense to stating that people who use the term "cash" don't know what they're talking about. They, in fact, do know that "cash" doesn't imply Apple has a Scrooge-McDuck-type vault loaded with hundred dollar bills.
>"If i own a million shares of apple stock, I don't own cash or a cash equivalent"
Commercial paper, short-term debt, preferred stock, T-bills, option contracts are all cash equivalents. This is where Apple is putting its money (they aren't buying tens of billions worth of common stock). It's "cash".
I have very simply claimed that Apple's cash and cash equivalents are not 100 billion, and that long term marketable securities are not cash.
You vehemently disagree, seemingly because they are liquid enough you may be able to get some money for them.
Let's start simple: Can you explain why if you think they are 'cash' or 'cash equivalents', they're explicitly not listed in the 10-k as "cash equivalents"?
I mean, you keep claiming up and down they are the same as cash, or "cash equivalent", and yet apple doesn't believe so. Nor does Google on their 10-q.
Given the companies don't believe they are cash or cash equivalents, or at least their auditors don't, can you explain why you do?
I'll also point out while it's theoretically at the discretion of the auditor whether the marketable securities can be included in "net cash", a lot don't, simply because the risk is not 0, where the risk on cash is ~0.
The risk on long term marketable securities is not 0 either, and in fact, can be quite high.
No, I disagree because I know what a substantial portion of Apple's investments are (this information is public), and they are, by definition, cash or cash equivalents.
>"Let's start simple: Can you explain why if you think they are 'cash' or 'cash equivalents', they're explicitly not listed in the 10-k as "cash equivalents"?"
Because they don't have to list them as such? There's a lot of deception in SEC filings; that's half the game. It's only me speculating, but I believe Apple is utilizing many tricks to help them retain all those earnings, rather than paying taxes on all those profits. Would that surprise you?
>"Given the companies don't believe they are cash or cash equivalents, or at least their auditors don't, can you explain why you do?"
Taxes.
I mean, this side-discussion started because you made the claim:
"In short: Apple doesn't really have some amazing amount of cash."
Which is only true in the strictest definition of "cash". When "cash" is used how most investors understand it --those people you accused of being "seriously confused"-- Apple has a bunch. You don't have to take my word for it, it's out there.
They may be long term instruments that they would take a loss on if they traded before maturity. Heck, they may be long term instruments that have trading restrictions on, etc.
It's simply not cash. Period.
You're right in that it's not cash, and in some cases it's illiquid. However, you seem to think the 'long-term' in 'long-term marketable securities' means 'will take a long time to sell for fair value'. This is wrong; long-term just refers to the maturity of the instruments. Again, these long-term instruments are more likely to be illiquid, but they're not illiquid by definition. 10-year Treasury notes are 'long-term' but highly liquid.
So, in conclusion, it depends on what these "long-term marketable securities" are, which is what most of the other replies are trying to say. If you want to argue, argue that Apple owns a bunch of RIMM stock or something, don't accuse others of misunderstanding the term.
[1] http://www.heraldtribune.com/article/20120123/ARTICLE/301239...
Not saying it can't or won't happen, just that you seem to be passing off your conjecture as something that's inevitable.
Now the big arena is mobile and this announcement is about Mac lines but it's not hard to believe that this is a tip of the iceberg investment and that Apple might increasingly move to a system of using Foxconn's non-China factories around the world. Apple is partly financing the Brazil plant for Foxconn IIRC.
Another aspect that hasn't been discussed is the opening around the world of rare earth mines (reopening in the case of the California mine). Part of the reason "those jobs [weren't] coming back" was because China's rare earth's monopoly increasingly was reserved for Chinese made products.
Apple spends a lot of shipping too, so I'm sure it's a balancing act between cost of labor/automation/shipping.
[1] http://spectrum.ieee.org/robotics/industrial-robots/rethink-...
Also there probably is not much savings going on by making these parts in China. The expensive part would be if you were making your own motherboards and chips in the USA. Apple does not need to do it, and gets good PR in the process.
Apple already sources the A5, A5X, & A6 chips from a Samsung factory in Austin, Texas.
I suspect this is to combat negative PR from their overseas subcontractors.
Similar to when Gmail came out and people were blown away that they offered 100MB of storage, and everyone (Yahoo, Hotmail) had to step up despite their far larger userbase. Then, when they finally matched Google, Google raised their cap to 1GB.
In this case, manufacturers will have to work hard to match Apple's bring-mfg-to-the-US actions, but won't even be on the same playing field, since Apple's worked so hard to maximize the efficiency of their supply chain.
"Our transparency in supplier responsibility is an example of recognizing that the more transparent we are, the bigger difference we would make. We want to be as innovative with supply responsibility as we are with our products. That’s a high bar. The more transparent we are, the more it’s in the public space. The more it’s in the public space, the more other companies will decide to do something similar. And the more everybody does it, the better everything gets.
It’s a recognition that we need to be supersecretive in one part about our products and our road maps. But there are other areas where we will be completely transparent so we can make the biggest difference."
[1] http://www.businessweek.com/printer/articles/85170-tim-cooks...
It has to be one OR another...