Asymco on owning factories

  • Posted: 16 December 2010 01:52 PM #16

    As the US has the 2nd highest corporate taxes in the world (second only to Japan - and their 10+ years of zero financial growth, even with 0% interest on business loans), don’t expect ANY company to bring manufacturing on shore. The tax burden alone is overwhelming - and, based on SEC rules on public corporations, where decisions that detract from shareholder returns can be construed as illegal acts, moving any operation to a location where costs are greater, could result in lawsuits and potential incarceration.

    Get the damn government out of the way, stop spending money (a constitutionally illegal act, except for debts incurred), and reduce business taxes in half, and watch the flood of business back to the US.

    Offshore manufacturing or development is only marginally less expensive, as the remote management, cultural divide, and a myriad of business issues, increase costs - just not enough to offset the high tax burden.

         
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    Posted: 16 December 2010 01:57 PM #17

    Foxconn’s CEO itself recently commented on the feasibility of US factories.  He claims that he’s wanted to build extra FoxConn factories in the US, but the lawsuit factor is keeping him from jumping in.  An Apple-FoxConn joint venture would make sense.

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  • Posted: 16 December 2010 02:05 PM #18

    I think the idea of adding manufacturing to Apple’s vertical-integration model fits with their corporate ethos of “making the whole widget.” Aren’t some of the lawsuits and problems being dealt with now all related to “imported goods?” Maybe they just want more control and predictability out of their supply chain? More jobs in the US is always a good thing. That 50billion dollars they have laying around builds some nice factories…

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  • Posted: 16 December 2010 02:13 PM #19

    Sir Harry Flashman - 16 December 2010 04:05 PM

    No our workers would not do it for $125 per month and they shouldn’t, but something needs to be done put the 1 in 5 back to work. What do you suggest?

    Can’t help but jump in on this a little bit.  I believe that a great many of our problems with employment, social services, etc. were caused by the results of people saying “something needs to be done”.  The unemployment issues in many ways stem from just that.  Something needed to be done about making home ownership more attainable so laws were passed, lenders coerced and the next thing you know we have a financial meltdown.  The housing bubble overheated so we have a market that is oversupplied.  There are now a bunch of so called construction workers sitting at home collecting unemployment with very little chance that their job is coming back.  We can argue the fine points of what I’m saying but the gist of it applies.  The responsibility of employment needs to be returned to the individual as uncaring as that may appear because in the end nothing else works.

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    Posted: 16 December 2010 02:25 PM #20

    “The responsibility of employment needs to be returned to the individual as uncaring as that may appear because in the end nothing else works.”

    Yes, the individuals who do the hiring, who create jobs, not the workers.

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    Posted: 16 December 2010 04:30 PM #21

    Sir Harry Flashman - 16 December 2010 04:05 PM

    ... No our workers would not do it for $125 per month and they shouldn’t ...

    Why not?  Americans are of divine birth?

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    Posted: 16 December 2010 04:38 PM #22

    “Why not?  Americans are of divine birth?”

    Everyone is including the Chinese workers.

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    Posted: 16 December 2010 04:41 PM #23

    sflocal - 16 December 2010 05:48 PM

    ... Companies are in the business to make money, not do what’s best for their country.

    Countries are legacies which we should do away with.

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    Posted: 16 December 2010 07:04 PM #24

    Mace - 16 December 2010 08:41 PM
    sflocal - 16 December 2010 05:48 PM

    ... Companies are in the business to make money, not do what’s best for their country.

    Countries are legacies which we should do away with.

    Corporations are working on that.

         
  • Posted: 19 December 2010 12:27 PM #25

    Asymco,

    Jobs and Apple’s leadership team are focused on innovation, design, usability, market strategies, and content licensing. I don’t think they want to own and manage factories.

    They do, however, need to create and manage huge and comprehensive manufacturing partnerships to provide key required parts in their (soon-to-be) billion device per year era.

    I think they will follow on w/ more production partnerships modeled on their reported agreement w/ Sharp LCD. Sharp is building a $1.2B fab w/ fully committed to producing Apple small screen LCDs. Apple’s paying/financing the fab upfront, so it can be built.

    Perfect: Apple gets its parts without diverting leadership resources and Sharp gets its profits.

    I can see Apple doing this with all sorts of key manufacturing partners in several different counties and continents.

    More factories and parts, less management.

    [ Edited: 19 December 2010 01:02 PM by starman4 ]      
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    Posted: 19 December 2010 12:40 PM #26

    starman4 - 19 December 2010 04:27 PM

    Asymco,

    They do, however, need to create and manage huge and comprehensive manufacturing partnerships to provide key required parts in their (soon-to-be) billion device per year era.


    Please tell me where you think this is going to come from. My guess is we are around 150 mil total unit this year. Soon-to-be = X years, what is X ?

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  • Posted: 19 December 2010 01:00 PM #27

    Good question about X years…

    If we count iPhones, iPads, touches, Macs, and Apple TVs I’d guess as soon as 2013 or as late as 2015.

         
  • Posted: 20 December 2010 07:27 AM #28

    Apple is cutting edge in going to new technologies that require substantial investment. At the same time, in order to remain nimble despite large size, Apple exploits the huge PC and cellphone component supply infrastructure. And those supply factories have to be low margin operations, because it’s fairly easy to switch suppliers when the customer holds all the required IP rights.

    So, new production facilities frequently need to be built to deliver Apple products.  But before the facilities are obsolete, Apple hopes to have moved on again. One way or another, the following crowd will be using equivalent facilities by then. So the facility is built for Apple, then transferred elsewhere. The residual value when Apple no longer reserves the facility is maximised if it is transferred away as a going concern- equipment, buildings, staff and all; not if Apple has to sell it off and retrain all the production staff for whatever’s next.

    Apple has a very efficient way of achieving this, and already uses its own capital to build factories. The way it works is often as follows:

    Apple makes a substantial up front payment to a supplier which is contractually a prepayment for guaranteed future orders. The supplier is able to build and staff a new state-of-the-art facility meeting Apple’s specific requirements, plus any they may choose for themselves, with zero or better cash flow or risk impact. Apple contracts to buy the product of this facility in sufficient quantity for long enough that the supplier will cover the costs at a minimum. If/when Apple stops requiring those facilities, the supplier still has an advanced facility at lower cost than any of his competitors, and the expertise to build further parallel facilities.

    By their nature, production facilities go through a lifecycle where they cease to be making the latest products. If Apple owned factories, they’d have to dismantle the factories and sell of the equipment for near zero, or to lose all the trained factory staff if selling as a going concern. What Apple does now is in all respects better than actually owning the factories.

         
  • Posted: 20 December 2010 07:34 AM #29

    But if Apple had 50% of the cellphone or PC worldwide unit sales, then of course they’d have to own a good proportion of their own facilities; there wouldn’t be enough other customers that a supplier would be happy with the prospect of being completely at Apple’s mercy.

         
  • Posted: 20 December 2010 10:09 AM #30

    Sleepy,

    Thanks for the 2 posts above. Very clarifying.