NEW YORK – At the beginning of this year, we launched a series called "Rebuilding America" in which we attempted to explore the prospects for reviving U.S. manufacturing. We acknowledged at that time that we could be accused of beating a dead horse since many in the electronics industry favor the outsourcing of manufacturing to Asia as a way to reduce costs.
Beyond that is the reality of globalization and what has been called the global "fragmentation of production." Still, we argued, the engineering importance of "making stuff" as a way of understanding the product design process can't be underestimated.
With that in mind, you have no doubt heard about Apple’s plan to spend more than $100 million to bring back “some production of Mac” to the U.S. from China. If you’re like me, you probably rolled your eyes and said, “Yeah, right!”
A healthy dose of skepticism is in order here.
First, what’s Apple’s business case? Setting aside the goodwill Apple has already gained from media coverage, we need to ask whether it actually makes sense to manufacture Macs at home.
We need to see a cost analysis. What’s the labor cost? What’s the shipping cost for finished products? Do we still have a supply-chain infrastructure capable of bringing all the components necessary to make Macs here and deliver them on time? What’s Apple's operating margin for this product line? How much will it cost to operate a U.S. factory?
We need to know the cost structure for moving in-shoring "some" production. Corporations frequently use cost as the alibi to ship jobs overseas. If some manufacturing jobs are returning, we must understand the business case for such a move.
Apple CEO Tim Cook, in interviews with Bloomberg Businessweek and NBC's Brian Williams disclosed none of these details. Cook never revealed the actual products Apple will be making in the U.S. or how many Apple expects to make.
Cook vaguely suggested producing some Mac computers here "beyond the assembly work" it already does stateside. Cook’s statements implied that Apple will have "partners.". For instance, he told Bloomberg Businessweek that the plan “doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”
Again, what “people”?
So far, all we’re looking at is a symbolic gesture by Apple -- just in time for the holidays.
Apple's success is based as much on a mystical glow of coolness and virtue as on hardware and software superiority. As Apple's hardware superiority vanishes, its software superiority declines (even ignoring its "Fruit Loop" mapping program), and its share price plummets, the company needs to find some way to restore the glow. A gesture toward domestic manufacturing might help - a bit.
Excellent question -- how do we define "manufacturing"? Most people would probably agree that it must be more than just packaging the final product for shipping, but would also agree that final assembly & test of the finished product qualifies as manufacturing.
We all know just how global the electronics supply chain is, but many of our fellow citizens outside of our industry do not. I think it's important If we look at the complete value chain of a product, beginning with IP creation (design) and ending with final assembly & test, and consider which process steps add value, how much value and where.
I was reading a discussion forum on another web site about this Apple announcement, and it was startling how little some of the commenters knew about the U.S. content and U.S. added value in many familiar electronic products. Part of this is due to country of origin labeling and perhaps some of it is due to misconceptions fostered by the news media.
One commenter, for example, believed that Apple's products are "made in China with Chinese components" and that even when Apple moves some Mac assembly to the U.S., it will just be "assembled in USA with Chinese components."
Another wondered why seemingly all hard disk drives are "Made in Thailand", despite the fact that he was referring to drives from WDC and Seagate -- both U.S. companies.
Likewise some ICs, even those fabricated in U.S. fabs, might be labeled "Malaysia" if the packaging/assembly site was located in that country -- leading some people to believe there is no U.S. content or U.S. added value in that IC.
Yes it was cheaper to make US companies more money overseas. President Bush even pushed hard for it. And now what we are no longer the leader in technology. Jobs and manufacturing must be kept in the USA. I never understood why we sent American jobs over seas! How may people lost there jobs and the snow ball effect. We send drones overseas that are open to invasion. The gps is weak and the video images can be seen by our adversary. When will USA government turn around and take pride in American workers! Our engineers are super but there must be a temwork effort on the USA.
What does manufacturing means? Mac chips are already made in America by Intel. PCB boards? Displays will not be made in the USA and will come from China, Taiwan or Korea. Plastic molding? Final assembly? Boxes? Globalization is driven by costs (wages, logistics), regulatory costs (taxes, healthcare, pension) and regulation arbitrage. High value added products (planes, chips, medical devices) can still be made profitably in the US but I don't hold my breath for finished electronic goods like PCs.
I don't think it is a question of logistics or supply chain. It wasn't a really a question when things moved overseas. Labor was less expensive and management made it happen. Somebody says "do it" and it gets done. Bringing it back will probably be easier. And given the breadth of electronics distribution in the U.S. (Arrow, Avnet, Future, TTI, Digikey, Mouser, Newark, Allied...) engineering builds will probably become a whole lot easier. In fact there are probably more than a few Apple engineers breathing a sigh of relief that they can now spend more time with their families and no longer have to make multiple trips to China every year. I look forward to further EETimes coverage and analysis on this as the events unfold. If Honda can manufacture cars in the U.S. then Apple ought to be able to build a PC here.
I think that both Apple and Lenovo are simply "testing the waters" to determine what manufacturing costs really would be here in the US. You can try to estimate and get a general idea of what you THINK the costs would be, but you won't really know until you actually do it. Tim Cook is a supply chain expert and he knows there is value having multiple manufacturing locations. You don't want all of your eggs in one basket, etc. IBM used to make Thinkpads in NC, Lenovo acquired that heritage. The know how is still there. It will be interesting to see how these two "experiments" work out.
There are many foreign car makers producing cars in the US. Samsung has a big chip manufacturing fab in Austin making SoC's for Apple and memory chips.
Nobody finds that hard to believe or question the economics. But when an American company announces that they will resume manufacturing in America, their action is labeled as a PR stunt.
Has the American people completely given up all hope for competing in manufacturing ?
PS- Just for the record, I think most analysts don't expect Apple to build that many PCs in the U.S. As the story notes, Apple has been cagey and has not given any numbers. It's largely a PR stunt.
Here's what analyst Craig Stice of IHS iSuppli had to say on the subject.
“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,” said Craig Stice, senior principal analyst for computer systems at IHS.
“Apple’s move appears to be a symbolic effort to help improve its public image, which has been battered in recent years by reports of labor issues at its contract manufacturing partners in Asia. However, 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.”
David Patterson, known for his pioneering research that led to RAID, clusters and more, is part of a team at UC Berkeley that recently made its RISC-V processor architecture an open source hardware offering. We talk with Patterson and one of his colleagues behind the effort about the opportunities they see, what new kinds of designs they hope to enable and what it means for today’s commercial processor giants such as Intel, ARM and Imagination Technologies.