Shortcuts

It Would Cost Apple Over $4 Billion Extra to Build iPhones in the U.S.

rated by 0 users
This post has 8 Replies | 0 Followers

Top 10 Contributor
Posts 25,794
Points 1,163,250
Joined: Sep 2007
ForumsAdministrator
News Posted: Wed, Sep 25 2013 12:44 PM
Boy, math sure can be a buzz kill sometimes. For example, what a boon to the U.S. economy it would be if Apple suddenly decided to start building its iPhones stateside rather than outsourcing production to China. Unfortunately, if you crunch the numbers, such a move is cost prohibitive, even for a company that makes as much money as Apple.

Tim Worstall over at Forbes wore out his calculator adding up the various costs of moving production to the U.S. based on some rough and not so rough estimates, and the final figure is in the billions. Before we get there, let's have a look at some lower numbers.

iPhone 5S

Using figures borrowed from Motorola's stateside production, it costs about $4 extra to produce a Moto X handset in the U.S. versus overseas. If we apply that figure to the number of iPhones Apple sold last year -- in the neighborhood of 150 million -- then right off the bat we have an added cost of $600 million. That's only part of the story, however.

Factoring in the much higher tax bill Apple would face by producing iPhones stateside, which is 35 percent versus the company's current tax rate of 2 percent, there's an additional $3.6 billion added to the cost. Toss in the $600 million figure from before and you come to $4.2 billion, which is how much more it would cost to build iPhones in the U.S. than China, based on last year's sales totals.

Sobering, right? Again, part of this equation relies on rough estimates and a bit of fuzzy math, and it doesn't factor in negotiated tax rate deductions. Plus, that figure is representative of moving the entire production to the U.S. rather than a portion of it, as Motorola did. If Apple wanted to create some goodwill (and jobs) in the U.S., it could produce a relatively small number of devices stateside and not come close to spending a $4.2 billion premium, though it would inevitably end up paying more.
  • | Post Points: 110
Top 150 Contributor
Posts 608
Points 5,495
Joined: Sep 2012
Location: Canada
ForumsAdministrator
Moderator
RWilliams replied on Wed, Sep 25 2013 1:45 PM

4.2 billion, huh. That's the peak of a 32-bit integer. I wonder if that happens to be the reason Apple has moved to a 64-bit SoC?

In all seriousness, I'd love to say, "Apple should suck it up and move production here -anyway-, given it has like $100 billion in the bank!", but the sad reality is, only a fraction of what Apple would be spending over here would actually be going towards the American people in the form of jobs. Maybe the US government should offer a little more incentive for companies like Apple to stay here. I might be naive, but I'd like to think that if the terms were reasonable, Apple would much rather have its phones built inside of its home country vs. a foreign country, even if it costs a little bit more.

  • | Post Points: 5
Not Ranked
Posts 25
Points 245
Joined: Jul 2013

So, they just cut 1/4 of their marketing budget that makes people think their crap is actually special....

  • | Post Points: 5
Not Ranked
Posts 10
Points 80
Joined: Sep 2013

Have to love foreign slave labour!

  • | Post Points: 5
Not Ranked
Posts 10
Points 80
Joined: Sep 2013

Have to love wage slave labour!

  • | Post Points: 5
Top 500 Contributor
Posts 116
Points 880
Joined: Mar 2013

You mean it would consumer 4 billion extra, since I'm sure apple would just add that to the cost of the device.

  • | Post Points: 5
Not Ranked
Posts 18
Points 120
Joined: Sep 2013

We need to cut down the red tape and allow businesses to survive here. It's pathetic that our lawmakers literally do not give a crap that we are sending billions away to other people's pockets when it can stay here at home. I just saw a few hundred people lose their IT jobs over to India a few months ago...We are skilled and educated, and being robbed of our jobs.

  • | Post Points: 5
Top 500 Contributor
Posts 216
Points 2,135
Joined: Mar 2010
SmogHog replied on Wed, Sep 25 2013 8:28 PM

I found this tidbit to be the most interesting part of the article.

" the company's current tax rate of 2 percent,"

BTW,Samsung doesn't make their phones in South Korea either.

  • | Post Points: 20
Top 150 Contributor
Posts 653
Points 5,925
Joined: May 2008
Location: Stockholm
mhenriday replied on Thu, Sep 26 2013 9:45 AM

Agree with SmogHog ; the 2 % tax rate (nota bene, that's the tax rate that Apple pays in the US on foreign sales of its products which are manufactured abroad) is the real story, as a longer quote from the Forbes' article makes clear :

«Apple’s profits for the 9 months ending in June 2013 were $29.5 billion and $6.9 billion in that third quarter. A straight line projection for the fourth quarter being the same as the third would give us annual profits of $36.5 billion. And 30% of this comes from those foreign sales of iPhones. Or around and about $11 billion of profits. Given the games that Apple plays with Ireland and so on those profits currently pay some 2% in corporate income tax. But if the iPhones were assembled in the US those games would no longer be possible and those profits would have to pay the full 35% US corporate income tax. 33% (35% minus 2%) of $11 billion is $3.6 billion.»

The calculated extra wage bill, based on what Motorola claims for the MotoX (~ 4USD per handset) is much less, about 600 million USD. And while FoxConn isn't exactly going broke overpaying its Chinese workers, if Tim Worstall is to be believed, real manufacturing wages in China as a whole have risen some 5-6 times since the turn of the millennium. Thus it's not a question of grossly underpaid foreign workers («slave labour») that is the main issue here, but rather that the US tax code permits Apple to get away with paying 2 % on profits on products that are both made and sold outside the US. Why is the US tax code written in that manner ? You tell me !...

Henri

Page 1 of 1 (9 items) | RSS