Macs made in USA could jump-start American manufacturing
When Apple CEO Tim Cook told NBC’s Brian Williams the company plans to make one of its Mac lines in the United States next year, he offered an early glimpse of what the return of American manufacturing will look like. It bears little resemblance to a 20th-century factory floor.
“[It] likely means a few hundred new jobs,” said Peter Misek, managing director of technology research at Jefferies & Co. “It's a big start and show[s] the wage and productivity gap with Asia is closing.”
While it might be a big start, even hundreds of jobs won’t move the needle on unemployment. What’s promising is the idea that Apple’s multimillion-dollar investment will spark demand for a more close-to-home supply chain that could have a ripple effect.
“It’s possible they might do chip production here. They’re more and more involved with designing their own processors,” said Jason Dedrick, an associate professor in the School of Information Studies at Syracuse University.
Cook said that some components — like the processor and the glass for the iPhone — are already made in the U.S. “Things like circuit boards, batteries, displays, chips — any of those could potentially be made here,” Dedrick said. “Apple has a lot of control over their supply chain. They tend to dictate where and how things are done by their suppliers.”
Although Cook didn’t comment on which computers or what elements of manufacturing and assembly he was talking about, analysts say it’s probably going to be the iMacs that are sold in the United States.
Apple sold roughly 4.7 million Mac desktops -- which includes iMac, Mac mini and Mac Pro -- in fiscal 2012, according to its annual report, and about 40 percent of the company’s business is domestic. This adds up to a relatively small footprint, which would make sourcing both American labor and components easier.
There are also shipping costs to consider. “The iMac is one of the biggest products they make, so manufacturing and assembling in the United States would save them a lot on air freight or shipping,” said Stephen Baker, consumer technology analyst at the NPD Group.
The work Apple plans to do in the U.S. won’t just be final assembly — a crucial distinction, said Martin Sullivan, chief economist at Tax Analysts. “Manufacturing is much more labor-intensive than assembly… The big thing to me is the number of jobs and how much those jobs pay,” he said. For Apple, this translates to a better shot at getting tax breaks from municipalities where its facilities are located.
There are other business reasons why the United States is increasingly attractive as a manufacturing site. It’s getting more expensive for companies to manufacture goods in China. The rising price of energy — both to power the Chinese factories as well as to ship the finished goods to the U.S. — erodes the benefit of a cheaper labor force. And Chinese wages are rising, too, which narrows the advantage further.
Apple won’t need to rely on a vast labor force both because the product line is small and because this type of manufacturing relies much more on sophisticated robotics, Dedrick said.
Aside from requiring fewer people, another difference in the rebirth of manufacturing is the prominent role of China. Cook told Bloomberg that Apple would partner with other companies on its American manufacturing, which most likely means Foxconn, Baker said.
“You’re going to guess it would likely be Foxconn. There’s no reason to think they wouldn’t help Apple set up some kind off assembly line manufacturing in the U.S.” Foxconn has facilities in Houston, and a spokesman told Bloomberg Businessweek it plans to expand in the United States.
Apple weathered criticism following worker suicides at Foxconn factories in China, and the boost American-made computers would give its brand equity is something the company probably also took into account when making its decision, said Sullivan.
“It’s going to give them a lot of positive press and inoculate them from all the negative publicity they’re getting so far,” he said.
The move also puts Apple back in the position of being the standard-bearer for re-imagining the future, a move that could please investors in light of the recent slide that brought the stock to a nearly four-year low. On CNBC, UBS analyst Steve Milunovich said Apple’s revenue is hitting a peak as the categories it dominates mature, even as he praised Cook’s ambition.
Likewise, manufacturing in the United States, once given up for dead, has shown other signs of life recently. Reuters reported that Boeing plans to ramp up output by 25 percent over the next year and a half, and auto sales rose 15 percent in November. In a statement responding to Apple’s news, the Alliance for American Manufacturing referenced a “growing list of major manufacturers that see the United States as an attractive location.”