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Apple Would Rather Kill U.S. Manufacturing If It Could

The Motley Fool logo The Motley Fool 12/21/2016 Evan Niu, CFA


Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

To this day, the Mac Pro remains one of the few products that Apple (AAPL) actually manufactures in the U.S. And it's not just final assembly that takes place stateside, either; Apple even makes other components like the metal chassis for the professional desktop here in the U.S. When the company unveiled the new is-it-a-trash-can-or-a-jet-engine design in 2013, it made sure to point out the shift in manufacturing.

At the time, like now, Apple was on the receiving end of criticism regarding its use of Asian contract manufacturers abroad (although the Mac Pro facility is operated by Singapore-based contract manufacturer Flextronics).

CEO Tim Cook tweeted about it:

It was a big deal at the time, even if mostly symbolic. Apple earned some political goodwill in the process, while minimizing the financial impact by choosing one of its lowest-volume -- and most expensive -- products to make at home. Here's the thing: Apple would still probably prefer to kill off its U.S. manufacturing.

It's about skills

In a recent Bloomberg report by Mark Gurman discussing the broader state of the Mac, some light has been shed on some of the challenges that have plagued the Mac Pro and its domestic production. Behind the scenes, Mac Pro manufacturing suffered from a few operational bottlenecks. For example, Apple had to create its own manufacturing tooling equipment and then train workers on operating the machines in order to construct the glossy chassis.

While investing in customized tooling infrastructure is nothing new for Apple, and comprises the bulk of its capital expenditures (which are expected to soar to a mind-boggling $16 billion next fiscal year), the real kicker is this snippet from the report (emphasis added): "Because of the earlier challenges, some Apple engineers have raised the possibility of moving production back to Asia, where it's cheaper and manufacturers have the required skills for ambitious products, according to a person familiar with those internal discussions."

This underscores a key reason that underpins Apple's preference of manufacturing in Asia. Sure, labor costs are lower, but the Mac maker has long noted that there is a dearth of mid-level manufacturing engineers with the right skill sets in the U.S.

The Trump factor

Just because Apple would like to kill off its U.S. manufacturing due to both operational and financial considerations, that doesn't mean it will. This is particularly true given President-elect Donald Trump's heavy emphasis on U.S. manufacturing on the campaign trail. We also know that Trump is vaguely offering incentives to Apple with the hopes of bringing some of those jobs back, a similar strategy that the president-elect used with Carrier parent United Technologies a few weeks ago.

There's far more political pressure now than there was in 2012 and 2013 to create domestic manufacturing jobs. So while Apple and its investors would still rather keep manufacturing in Asia, the company still has to seriously entertain the idea of making iPhones in America.

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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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