Trump Comments on U.S. Factories Make It Awkward for Apple

By Tripp Mickle Features Dow Jones Newswires

Pressed by President Donald Trump, Apple Inc. suddenly faces new pressure to build factories in the U.S, something it hasn't done for years and has shown no signs of wanting to do.

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Mr. Trump's statement that Apple plans to build three big plants in the U.S. has rekindled scrutiny of the company's policy of outsourcing of almost all of its manufacturing to contractor factories overseas -- mainly in China.

Mr. Trump had needled the iPhone maker over that issue during the 2016 presidential campaign. He had said little about it publicly since taking office, however, until an interview Tuesday with The Wall Street Journal, in which he said Apple Chief Executive Tim Cook had told him the company planned to build the plants in the U.S.

The pressure threatened to grow on Apple with the announcement Wednesday by the head of Foxconn Technology Group, Apple's largest contract manufacturer, that it plans to invest $10 billion in a display-panel factory in Wisconsin. Foxconn made the announcement at a White House ceremony with Mr. Trump. A senior White House official told reporters the plant wasn't among the three potential Apple facilities to which the president had referred.

The White House didn't respond Thursday to requests for additional comment about Mr. Trump's remarks. Apple has declined to comment.

The episode is the latest example of the complex relations between the White House, which is pushing to rebuild U.S. manufacturing, and corporate America, which for years has been adding more jobs overseas. The tension has put companies such as Carrier Corp. and Ford Motor Co. in Mr. Trump's crosshairs, though the White House also has proposed policies welcomed by many companies, including proposed cuts to corporate taxes.

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Carrier, which faced criticism from Mr. Trump over a plan to shift production to Mexico, said in November it would keep about half the jobs in Indiana that it had planned for Mexico. Ford, which drew Mr. Trump's criticism over plans to shift compact-car manufacturing to a new plant in Mexico, said in January it would cancel the plant and allocate $700 million in savings to create jobs at a Michigan plant. Last month, it said it would produce compact cars for the U.S. in China.

Apple today has only one plant of its own -- in Cork, Ireland. Its contract manufacturers operate two small U.S. plants, in Austin, Texas and Fremont, Calif. Those facilities have never grown beyond their narrow role making Apple's Mac Pro computer, a niche product that sells for $3,000 or more.

At least initially, the Austin plant was hampered by worker friction, inexperienced managers and quality-assurance issues, said AIan Hanrahan, a former Apple manufacturing supervisor who was flown to work at the Texas site from Apple's Irish facility.

Supply-chain experts and analysts say the prospect of Apple building one plant in the U.S. -- much less three -- is highly unlikely. Apple has built a sophisticated supply chain in China because that is where component suppliers are located, and manufacturing workers are abundant there. Shipping iPhone or iPad materials to the U.S. for production would cut into Apple's profit margins, observers say.

"You don't go from small facilities for a Mac to three plants," said Carolina Milanesi, an analyst with the technology firm Creative Strategies.

Apple last opened manufacturing facilities for computers in the 1990s with plants in Fountain, Colo. and Elk Grove, Calif. It shut down its last U.S. manufacturing line in 2004, laying off 235 full-time workers in Elk Grove.

Mr. Cook, who is as reserved and tight-lipped as the president is freewheeling and outspoken, has sought to engage the administration on manufacturing and other issues. He met privately with Mr. Trump in December and dined in January with administration advisers Ivanka Trump the president's daughter, and Jared Kushner, his son-in-law.

Apple announced a $1 billion fund in May to put money into advanced manufacturing in the U.S. It later invested $200 million in a Corning Inc. glass-making plant in Harrodsburg, Ky. Apple has said it supports about two million jobs in the U.S., including its own 80,000 U.S. employees and those of suppliers, app developers and entrepreneurs.

Asked in a May interview about shifting product assembly -- the final stage of production -- to the U.S., Mr. Cook indicated it was unlikely.

The Texas and California facilities were announced in 2012, when Apple previously faced political pressure over its reliance on overseas manufacturing. Apple then trumpeted a $100 million investment to make Mac Pro its first "Assembled in the USA" products in years. The project, led by contract manufacturers Flex Ltd.'s Flextronics and Quanta Computer Inc., was viewed as a test of American manufacturing's competitiveness.

Almost immediately, Apple ran into challenges at the Flextronics plant in Austin, Mr. Hanrahan said.

More than 80% of the workers were contract employees paid minimum wage for eight-hour workdays, Mr. Hanrahan said. When their shift ended or they fulfilled their 36-hour workweek, many walked off the job, he said -- even if the line were still running. "You could walk away to get a cup of coffee and come back and 10 or 20 people could be gone," Mr. Hanrahan said. "The line would stop. People would just be standing."

About 60% to 70% of the Mac Pro computers coming off the production line initially didn't meet quality standards and were scrapped, Mr. Hanrahan and another former employee said. He said the percentage of products that could be used eventually improved.

After about a year, former line workers said, Flextronics began laying people off. Chamita Griffin, who worked there at the time, said the company laid off 50 quality-assurance technicians and about 500 people on the assembly line.

"They got it to where they didn't need us anymore," said Jacob McCombs, who said he earned valuable experience at the Flextronics plant.

Flextronics declined to comment. It continues to operate the Austin plant producing Mac Pro computers.

Quanta didn't respond to request for comment on its California operation.

Apple hasn't updated the Mac Pro product line since its introduction but said earlier this year that it is working on a new version of the product.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

July 27, 2017 16:56 ET (20:56 GMT)