Apple Exploring Making iPhones in US

In June, Apple asked Foxconn and Pegatron to look into making iPhones in the US1. I’m a bit surprised they’d do this due the highers costs associated with US manufacturing 2, but there are a couple possible reasons.

According to the article’s unnamed source:

one view among the Apple supply chain in Taiwan is that U.S. President-elect Donald Trump may push the Cupertino, California-based tech titan to make a certain number of iPhone components at home.

So, Apple may just be trying to be prepared for that possibility. Or maybe the Mac Pro was a test, and Apple now feels ready to expand US production to their largest line.

From the same article:

According to research company IHS Markit, it costs about $225 for Apple to make an iPhone 7 with a 32GB memory, while the unsubsidized price for such a handset is $649.

From a very interesting, worthwhile Technology Review article called “The All-American iPhone”:

Assembling those components into an iPhone costs about $4 in IHS’s estimate and about $10 in the estimation of Jason Dedrick, a professor at the School of Information Studies at Syracuse University. Dedrick thinks that doing such work in the U.S. would add $30 to $40 to the cost.

And:

producing the constituents of an iPhone in the U.S. would add another $30 or $40 to the cost of the device. Initially, at least, “U.S. factories would be uncompetitive for most of these goods and run at low volumes, raising the differential with Asia even higher,” Dedrick points out. But it’s safe to project, he says, that in this scenario a phone would be at most $100 more expensive, assuming that the raw materials that go into the components were bought on global markets.

To me, “initially, at least” suggests that US manufacturing has the potentional to be somewhat competitive at iPhone volumes. At the same time, “$100 more expensive” on an already premium phone would put markets like the UK in a worse position. Remembering that this is a safe, or low, estimate of price increase, consider: in the US, iPhone 7 Plus 32GB is 769 USD. In the UK, it is 893 USD (719 GBP). A US price of 869 USD means a UK price of 1017 USD (819 GBP).

Back to the original article:

“Making iPhones in the U.S. means the cost will more than double,” the source said.

Assuming this is true, and that Apple would maintain a 65% margin, we would be looking at a US price rougly equal to the current MacBook: 1286 USD, while the UK would likely see a price of 1554 USD (1249 GBP). That’s a 67% increase here, 74% increase there.

That is extremely substantial.

  1. Five to six months after Trump said he’d make them produce their computers and phones here.
  2. Pegatron declined the request accordingly.