Analysts: Apple’s Production in the U.S. Will Be Negligible

Despite of All Hype, Only a Small Part of Apple’s Products Will be Assembled in the U.S.

by Anton Shilov
12/07/2012 | 05:49 PM

Even though Apple and its manufacturing partner Foxconn Technology Group started to assemble iMac all-in-one desktop PCs in the U.S. and Tim Cook of Apple indicated that the company was bringing part of the production back into the country, the vast majority of Apple-branded devices will still be made in China. Still, the effort may play a good role.

 

“The percentage of production likely to be shifted by Apple from Asia to the United States in 2013 is likely to be negligible, both for the company and for PC industry at large. Apple’s move appears to be a symbolic effort […] Given Apple’s high profile in the market, the company’s ‘insourcing’ initiative could compel other companies to follow suit and transfer production to the United States over the next few years,” said Craig Stice, senior principal analyst for computer systems at IHS.

Apple is apt to shift only the iMac line, to the U.S. next year; at the same time, the company is a relatively small player in the global PC market. In the global PC market, Apple is ranked No. 6, with a 5.8% share of global shipments by revenue in the third quarter of this year, according to IHS iSuppli.

With the vast majority of PCs now being produced in Asia by contract manufacturers, Apple’s move is unlikely to spur a major shift in production from Asia to the United States.

Apple makes extensive use of contact manufacturing services, with all of its production of notebook PCs outsourced to Quanta Computer, Foxconn Electronics and occasionally Pegatron Corp., which are original design manufacturers (ODMs) and EMS providers based in Taiwan that have manufacturing operations in China.

In 2011, Quanta manufactured all 13.4 million of Apple’s MacBook Pro, MacBook and MacBook Air that were shipped for the year, based on IHS data. The company also uses Foxconn for production of its other popular product lines, the iPhone and iPad.

Given Apple’s extensive overseas production, the total percentage of the company’s cost of goods sold (COGS) shifted from China to the United States in 2013 is prone to be very small. If Apple only moves production of one segment of its Macintosh product line, as reports indicate, the total shift in COGS could amount to less than 1% in 2013. Still, the move has some precedent in other circles. Apple is less inclined to shift production of other, smaller products to the United States.

“While Apple’s action appears largely to be a public-relations play, there are some real business justifications for technology companies shifting the production of certain types of products from Asia to the United States. Among these are rising labor costs in China, faster time to market and reduced costs in configuration and shipping. It’s not uncommon for original equipment manufacturers (OEM) to build bulky products, a category that could include desktop PCs, close to their end markets to offer timely configuration and save on logistics costs,” said Jeffrey Wu, senior analyst for OEM research at IHS.

Mr. Wu noted that both Quanta and Foxconn have some small manufacturing operations in the United States. Thus, even while some PC shifting production to the United States, Apple likely will still be using its Asian-based manufacturing partners to conduct this work.

Interestingly, Apple is not the first OEM to announce it will be moving some PC production from Asia to the U.S. in 2013. Lenovo Group Ltd. in October said it would start making ThinkPad-branded PCs (which it inherited from IBM) in North Carolina next year.