Recording Record Profits, Apple Must Return Manufacturing to USA (updated)

This week Apple recorded an astounding quarterly profit of$11.62 Billion in profits on revenue of about  $32.5 Billion.   With about 34% of the total coming from sales within the United States.   This is a rapid growth topping even wildly optimistic projections and about doubled the profit from the same as year ago.
With Apple’s record profits little of anything sold was actually manufactured within the United States,  yes Apple has design centers in California, Austin and other markets. Call Centers in the US for customer service of US support. So that is laudable, but in the numbers it is quite evident that Apple’s gross margins are astoundingly high, at about 47.4%.  Meaning that after R&D,  product development, marketing and manufacturing, it has a 47.4% profit.  Apple is sitting on over $100 billion in the bank in various countries.

Apple’s CFO reported, “Demand is staggering, and we’re selling them as fast as we can make them.”

So this begs a question,  why can’t Apple manufacture some of their Mac Computers, iPhones and iPads within the United States?  When asked by President Obama at a dinner before he passed away, Steve Jobs said, “Those jobs aren’t coming back.”

This was a startling statement from Jobs, who had prior taken pride for making Macintosh computers in America, stating that it was “a machine that is made in America.” Also, when Jobs had NEXT computers and an American manufacturing plant he said, “I am as proud of the factory as I am of the computer.”

Now in the late 90′s a new paradigm of Corporate agenda took place,  globalization of manufacturing, which is essentially cover for move jobs to cheaper places to manufacture for both labor costs, but additionally because it allows big corporations cover from taxation. Yes, Apple is a tax dodger.  They use every trick in the book to avoid paying taxes.  When Austin hasn’t come up with enough tax incentives for expanding their TX campus,  they stonewall it and threaten to go elsewhere.  The Apple agenda seems to be what most corporations do, maximize profits at all costs.   But when its gross profit margin is astoundingly high as it is, when is the amount of profit enough?
Is there a company which has more money in the bank than Apple’s $110 Billion USD???  probably not.  But still people say that a corporation has a “Fiduciary Duty” to earn maximum amount possible.  This is what previously moral executives shift their mindset.  They have no problem doing away with their blue collar workers.  Firing the manufacturing division and outsourcing it to companies designed to do it cheaper and help the international tax avoidance.

It would be great if the pressure to manufacture would be exerted to new Apple CEO Tim Cook. With the hiring of Tim Cook in 1998, who specialized in worldwide logistics and manufacturing at Compaq, a new era was ushered in. A global Apple which shuttered American and European manufacturing in favor of outsourcing to Chinese manufacturing contractors like Foxconn.  Most Mac desktop computers were made in the United States. Today, from the Mac Pro’s, Macbooks, iPad, iPhone, iPod, Apple TV and virtually everything is made in China. (save for an odd unit of Mac Pro assembled in the US.)

The one notable exception, is the brand new Foxconn manufacturing plant coming online in Brazil.  This plant to make iPad and iPhones was made because Brazil has stiff importation duties on electronics.  The taxes are something that has helped its economy grow in the past 15 years at massive rates.  One could argue that the US which used to have duties  and tariffs on many imported goods ought to reinstate this to push American manufacturing at companies like Apple.

When asked by the New York Times about using Chinese labor to assemble and manufacture goods, “We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.” Yes, you heard that right, an Apple executive said they couldn’t find the workers they need here.   When you know what they do in Foxconn factories, you could find this an outright lie.  Workers in most positions in Chinese Manufacturing are only semi-skilled. Much of what they do can be taught as a trade.  The outright fact is that Apple does not want to make things in the US.

“Labor is almost insignificant. What is really important are supply chains and flexibility of factories.” — New York Times reporter Charles Duhigg said of Apple’s overseas manufacturing.  The funny thing is that when you do research, the cost of labor in making an iPad or iPhone isn’t that much, it would add an incremental cost, but the margins would remain massive.

Americans also need to understand that there is a massive Chinese government subsidy to push all this manufacturing in China.  When Apple needed to have nearly indestructible glass for its iPhones and iPads, a brand new deal with Corning to make the “Gorilla” glass was done, but a Chinese plant was very zealous in getting the deal to manufacture that glass,  the Chinese Government had agreed to pay for the costs of the factory in subsidies, which also had Chinese engineers made available at no cost. The factory also had on-site dormitories so production lines could work 24 hours a day.

Yes, factories working 24 hours a day,  would this be a problem in the USA?  not really, car, plane and many industries working in the US have worked amazing shifts without breaks in schedule,  just another shift on the manufacturing line steps into place.   Apple was asked about staffing up a US set of factories, where they needed about 7800 specially trained engineering specialists.  If they were asked to hire those people and about 180,000 other staff, it could take about 10 months.  This  would be a large amount of work, but it is possible.  Entire cities were built around automobile manufacturing.  When you examine how its manufacturing in China works,  small cities, aka Foxconn manufacturing plants, have popped up and been created.   This could happen in the US.  There are the workers available, but if you look at Tim Cook’s agenda of doing the hiring and scaling in a month, it is not possible.

Another great argument is the human rights abuse and cheap labor practices in the Foxconn plants in China and now Brazil.  China’s plants have had continued protests, suicides and worse.  Now just a month into the new Brazil assembly plants, there have been protests about many aspects of the new plants there.   Yes, Foxconn has been giving Brazilian workers the minimalist abuse they give their Chinese workers.   What is the backup plan for Foxconn??  To manufacture with less humans, use robots and have less labor problems.  Within 3 years Foxxconn will likely have more robots than humans working for them.  Well, if that’s the future of manufacturing, why not bring it back to America?

Is staffing up your manufacturing fast and cheap the best goal for Apple?  Well,  if you look at Spain’s rapid unemployment of close to 26% and the rest of Europe being in real distress economically.  If the US is going to get hit soon also. With massive unemployment in the US, should a company like Apple take the moral high ground and do better to hire more Americans for manufacturing?  Hell yes!  Steve Jobs used to pride his companies for their US manufacturing plants.  That needs to return.  Pride in American Made is vital.  There is less human rights violations, political rights violations and more.  Even in the TSA/Homeland Security world, America should stand proud that it is a place of better free speech and freedom than nations like China.

 
Today, about 50% of college and graduate school graduates are unemployed or underemployed.  It would not be a large leap to believe that sciences and proper school programs would be there if there if the jobs were there.  Today in America, tech companies like Apple, Microsoft and others use a government program to hire foreign workers in the US.  They apply to import workers under H1-B visas.  These workers often train in the US main office, then startlingly dept’s and divisions start getting opened in foreign nations with these very same workers getting exported to lead that development abroad.

The issue of manufacturing jobs, white collar jobs and support jobs ought to be one which companies such as Apple are hard pressed on.  The economy is in a difficult place, America needs jobs and to focus on itself gain.  But companies like Apple need to focus not only on the international side of business, ie Tim Cook’s embracing China, but why not re-embracing America?   Perhaps stopping the prized agenda of tax avoidance to an extreme. Apple paid less than 10% of its profit last year in taxes.  Wasn’t the corporate tax rate much higher in most nations?  It had been but it is for another article on how tax avoidance and lobbying has taken over the board rooms.

Apple can and must do better.  It is time to place pressure on Tim Cook to re-Americanize Apple.  He was the man who helped shift manufacturing to China.  Now it’s time to get him to help move it back.  At least a sizeable portion of the goods, accessories and more ought to be made in the good ole USA.

UPDATE:     After receiving some healthy advice from friends at MacRumors.com, i updated the article.   But it is very important to remember that corporate profits are not the only important agenda for big companies.  If a company slashed most of its blue collar jobs in favor of international manufacturing, are they really being responsible to the greater economy?  Not at all, the globalization of manufacturing has had a material damage to local economy where many companies like Apple, GE, Cisco, HP and many more are based.   When the greater economy heads into disaster, it is hard for many businesses to succeed.

The Macro-economic examination of the economy must take more of a valued examination and priority for a balanced approach to society and an successful economy where more can prosper!
While this is a US centric article, by no means does this mean to ignore Europe. In the past Apple has manufactured Mac Pro towers and more in Ireland. It would be fantastic to see more manufacturing in Europe also.

The news on 5/10/12 that Apple would invest money to upgrade Foxconn factories to help with worker conditions is a better moral upgrade for Apple to continue its Made In China approach. But, we stand by our belief that Apple needs to restart US and EU manufacturing significantly.

-Peace, Love & Apple Pie

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http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?pagewanted=all

http://www.nytimes.com/2012/04/25/technology/apple-profits-up-as-iphone-sales-grow-88.html

http://www.economicmodeling.com/2012/03/22/what-apples-supply-chain-says-about-us-manufacturing-middle-skill-training/

http://online.wsj.com/article/BT-CO-20120424-720650.html

http://venturebeat.com/2012/04/09/its-time-for-apple-to-bring-manufacturing-jobs-back-to-the-u-s/

http://www.reuters.com/article/2011/08/01/us-foxconn-robots-idUSTRE77016B20110801