Momoko Toyotake tries to use Apple's new iPhone 7 (R) and 7 Plus after they went on sale at the Apple Store at Tokyo's Omotesando shopping district, Japan, September 16, 2016.    REUTERS/Issei Kato

Momoko Toyotake tries to use Apple's new iPhone 7 (R) and 7 Plus after they went on sale at the Apple Store at Tokyo's Omotesando shopping district, Japan, September 16, 2016. REUTERS/Issei Kato (Copyright Reuters 2016)

This Is How Apple Can Make iPhones in America

By Opinion FOXBusiness

When Donald Trump vowed to “get Apple to build their damn computers and things in this country,” I remember thinking, good luck with that. It takes hundreds of thousands of workers in China to assemble 200 million iPhones a year. It seems unfathomable to think the Silicon Valley tech giant could build such an operation in the U.S.

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But the more I think about it, and contrary to what many suggest, it can be done. On a strict cost per unit basis, it would not be cost or price prohibitive. But whether it will be done depends to a great extent on how much federal and state governments are willing to cough up in tax incentives to make it happen.

According to IHS, a publicly traded research and analytics firm based in London, the total cost to manufacture an iPhone 7 is $224.80. IHS estimates that $219.80 of that is component costs and $5 for assembly and test. While CEO Tim Cook has scoffed at independent cost breakdowns of Apple products, IHS’s tear-down analyses are usually quite accurate, in my experience.

So 219.80 is fixed no matter where it’s built. Since most of the components are manufactured in Asia, there will be additional shipping and logistics costs, but those are nominal. So the question becomes one of, how much more than $5 would it cost to assemble and test an iPhone in America?

Apple has reportedly asked its two manufacturing partners to look into just that. Pegatron declined but Foxconn, which depends on Apple for more than half its business, wisely agreed. I think Cook wants to be prepared when it comes time to negotiate with the Donald on tax incentives. We’ll come back to that later.  

A Foxconn worker makes about $400 a month, so depending on where the facility is located, a low wage U.S. worker would make between four and five times that. Tack on an adder for higher taxes and insurance premiums and the incremental assembly cost would add less than $50 to the retail price of the phone, profit margin included. That is feasible, especially on a premium model.  

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Which brings us to the facility and equipment. That’s where incentives come in. Apple has $180 billion parked offshore. If it repatriates just half of that under Trump’s proposed 10% repatriation tax, that’s $9 billion in incremental tax revenue the federal government has to play with. It would make sense to use some of that to incentivize Apple to build facilities here. That would cover the cost of an iPhone plant.

The real elephant in the room is finding hundreds of thousands of people willing to work on an assembly line for low wages. That’s a real problem. But consider this. Trump is looking to make good on a campaign promise and Apple would benefit from the goodwill and PR. To achieve that, they don’t have to make every iPhone here. Just one model – a richly featured phone – would do the trick.

That would solve both the worker availability and retail price elasticity issue, since users would be more willing to pay more for a premium model.

Which brings us to the notion of an all American-made iPhone. That will never happen. Apple can certainly make its preference for American-made components known, but since the vast majority of its hundreds of suppliers are based in China, Taiwan and Japan and semiconductor plants cost a fortune to build, that’s a real stretch. But in time, Apple can certainly increase the percentage of American-made components in its devices.

The bottom line: If Trump and Cook work together, they can definitely make a Made in America iPhone happen, as early as 2019. And I suspect they will. 

What do you think?

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