Apple CEO Says Chinese Have More Skill Making Their Products Than Americans

China Money Report ^ | 22 December 2015 | D. Collins

[Lorianne]

Tim Cook has come out about a real truth of the decline in manufacturing. What he omitted however, is that no one will manufacture in the U.S. unless they absolutely have to due to a 38% corporate tax rate.

On 60 Minutes Sunday, Charlie Rose asked Apple CEO Tim Cook about his company’s manufacturing practices in China. Cook said the decision to use Chinese manufacturing has nothing to do with American workers demanding higher wages. He said it was because the Chinese have more skill.

“Let me be clear,” Cook told Rose, “China put an enormous focus on manufacturing in what you and I would call vocational skills. The U.S., over time, began to stop having as many vocational skills.

[central_va]

Apple lists an unlocked 16GB iPhone 5S on its site at $649 and an iPhone 5C at $549 Manufacturing, including freight, to equal $18-20 per unit.

Even if you double the per unit labor cost it would still be a tiny part of the total cost per phone.

Lets say you pay a slave nothing to assemble a phone and they can assemble 20 per hour. That adds zero to the retail price of 549.00.

Let's say you pay an American 20 bucks per hour to assemble 20 phones, that is 1 dollar per phone. So the US made phone would cost 550.00. Would yo even notice?

[itsahoot]

Almost ever every job could be learned by a 12 year old in 5 minutes.

If true it won't be a humans doing those jobs if they ever return.

If labor prices go up enough robotics will simply replace them once the labor cost exceeds the initial investment in the robotics, count on it.

McDonalds will be one of the first to automate fast food because they don't need to pay someone $15.00 an hour to insult their customers.

It is never about the dollar amount of the hourly wage it is about the purchasing power of that hourly wage.

[central_va]

I have no problem with robo factories as LONG AS THEY ARE PHYSICALLY IN THE USA.

[itsahoot]

No matter how good the screening a company may do, some underage workers will get in by using stolen or borrowed ID cards. When discovered, the company that allowed it to occur, is obligated under the terms of Apple's contracts, to pay for that underage worker's education all the way through graduation from a university, or age 25. That's a very dire penalty.

It occurs to me that this would be a great incentive to get a kid placed illegally in those companies and arrange a discovery.

Oh well.

[itsahoot]

Will you quit posting facts, no one cares, Apple is Evil SamSung is gooood.

[itsahoot]

Lets say you pay a slave nothing to assemble a phone and they can assemble 20 per hour. That adds zero to the retail price of 549.00.

Even slaves have to be fed.

I suggest you only buy android products they are made exclusively by union labor right here in the USA. Either that or direct some of your hatred to the other manufacturers that do exactly the same thing you hate Apple for.

If Apple customers did not feel they were getting a better deal with Apple they wouldn't buy them, simple as that. I a using an old Mac Pro that will soon be 6 years old and I could sell my Mac and buy 6 or 7 Windows machines with the money, you might consider why I don't?

[central_va]

I know BS when I see it. I like Apple, I am using one right this second. But BS is BS.

[DannyTN]

"Would they have more rights if Apple were not there? Didn't think so, in fact they would likely be worse off.

That's the same argument American slavers used to support slavery here in the U.S..

Besides it's not about them. It's their people and their government's role to take care of them. It's about American jobs. We can help them once we've taken care of our own.

But right now, we're tearing down America trying to help everyone else. And that will help no one in the end.

[roadcat]

Of course, you could buy a brand new Volkswagen bug for $1600 then too, and gas was 27 cents or less a gallon. Sometimes they had gas wars and the price would drop to 17 cents. . . but you got Blue Chip or Green Stamps with every purchase and a minimum wage worker pumped your gas, checked your oil and air in your tires, and washed your windshield for you. . . and you might get a water tumbler with a scene of mountains on it (collect the whole set) with a fill-up.

I remember those days! I was one of those gas station workers, mostly worked at Texaco. Had to wear a uniform, and automatically pop the hood on every car that came in and check the oil and water, as well as wipe the windows and check the tires. The boss ordered me to pop the hood unless the customer protested at least three times that it wasn't necessary. Think I was getting $1.20/hour. Gas around 24 cents/gallon. My wife bought her first car, a Datsun coupe fully loaded with all options, for $2300. Our rent was $200/month. The nice thing was you could get a job easily, no degree required. These jobs helped me pay my way through college (I was working swing or midnight shifts).

The other thing I remember is that many recreational activities were free or cheap. In SF, the local zoo, aquarium, museums and other attractions in Golden Gate Park were free, supported by taxes. Now they charge an arm and a leg admission that make them unaffordable to many people (dozens of dollars). Private cheap amusements like ice skating rinks, bowling alleys, amusement parks with rides, drive-in theaters and the like have largely disappeared. Same goes for penny candy stores, which were everywhere in neighborhoods, all gone. I blame government interference with regulations and high taxation, ruined things for everyone.

[itsahoot]

That's the same argument American slavers used to support slavery here in the U.S..

B$. You just think your world would improve if Apple died. It Won't.

[itsahoot]

I know BS when I see it.

Apparently not. See here for current old Mac Pro prices and these are largely minimal systems.

[Swordmaker]

Apple lists an unlocked 16GB iPhone 5S on its site at $649 and an iPhone 5C at $549 Manufacturing, including freight, to equal $18-20 per unit.

Do you always make up your arguments? Pull them out of your nether regions? The Apple iPhone 5S is not being offered on Apple's website for anywhere near that price. The Apple iPhone 5C is NOT even available. Those models are two years ago. Apple is now offering iPhone 6S from $649, 6S plus from $749, iPhone 6 from $549, iPhone 6 Plus from $649, and the iPhone 5S from $450

The cost of an iPhone has been calculated by several organizations who do break downs and then estimate the parts and labor that goes into each product have consistently come up with costs around $240 to $260 based on the subsystems and materials, certainly not $18-$20 per unit. They do not include shipping nor do they include amortized R&D, amortized future warranty support, overhead, or a host of other costs that people like you fail to even consider that must be included in every product produced.

Your estimates are of by an order of magnitude and then some.

[central_va]

BS, Back it up with references.

Apple lists an unlocked 16GB iPhone 5S on its site at $649 and an iPhone 5C at $549. In a report of exacting detail, UBS estimates gross margins of around 50% for both devices. The report notes: Adding box contents, manufacturing, and non-BoM [Bills of Material] related costs, we estimate gross margins could ramp to 45-55% for the iPhone 5S and 48-54% for the iPhone 5C overtime as production scales and matures. In our view, non-component costs are likely to reach to approximately 33-40% of total device costs, largely driven by deprecation and software amortization expense. We estimate Apple's depreciation expense is roughly $25 per device, accounting for the company's sizable investments in non-leading edge production equipment. We assume Apple's warranty accrual rate is 1.8% and manufacturing, including freight, to equal $18-20 per unit.

Link here.

Get it? 15 bucks labor on a 500-600 buck phone.

[Swordmaker]

Apple lists an unlocked 16GB iPhone 5S on its site at $649 and an iPhone 5C at $549 Manufacturing, including freight, to equal $18-20 per unit.

Don't get into a p*ssing match with an Economist with false, made up figures, Central_Va. He'll hand you your head. I AM an Economist. . . and you just did that very thing. When you use falsehoods in an discussion, expect to be handed your head.

There is no "slave labor" involved except in your imagination. The assembly workers making Apple products are paid several times the minimum wage in the economy in which they live, providing a good living wage, one which can provide them enough to live on and also to send home money to their families, if they choose to. Apple assembly line workers are paid BETTER than workers on any other consumer electronics assembly line making any other products you may own, including Microsoft, HP, Dell, Lenovo, ASUS, and every other computer make. Apple makes sure that the workers who assemble on their products are paid better wages than the workers on other assembly lines by at almost 50% more!

When the makers of YOUR phone and YOUR computers start making sure their workers are paid as much as the workers on Apple's assembly lines by requiring that level of pay in their contracts, you can start complaining, but until then, shut the hell up. You don't have a leg to stand on screaming about "slave labor."

The ability to assemble phones in China is not at all about labor costs. . . it's also about just in time inventory and regulatory and permitting costs, and frankly, a government that works with the businesses to get up and producing instead of working against the business to prevent them from opening the doors with second-guessing permission requiring committees and inspection organizations requiring the business to meet ever-changing goals at every step of the process.

Four years ago I spoke to a guy who had been the owner of a California manufacturing company who had owned a viable company making a power outlet that had four USB outlets for charging mobile devices included in it. It was his own invention, and he had a patent pending on his device. He had been selling it for six months and his first manufacturing run inventory was dwindling under overwhelming demand and he had desperately needed to re-start manufacturing for a second, much larger run because of he had upcoming huge orders he had to meet. This new run required him to hire more employees.

Suddenly his company went over a new size threshold and he was inundated by regulatory agencies from both Federal and State. They would not let him start production.

He wound up incessantly filling out paper work, paying an idle already hired workforce, jumping through new hoops presented at what seemed to be daily rate as agencies found new things they forget to tell him about, before they would allow him to re-start his production. Everything was ready, except the permitting processing.

He decided he was going to lay off employees until he was below the fifty employee threshold, and go ahead and start making smaller runs. He was told that was NOT going to stop the process. If he did that his company would fall under a California law that required a 90 day advance warning before laying off employees. . . and he could be fined. Good Grief. Once he had passed the threshold, he was considered over the threshold for a whole year.

In the meantime, while months of delays from bureaucrats kept up the harassment, knock-off exact copies of his patent pending design suddenly started appearing on the market selling retail for LESS than he could manufacture it. His own invention was being infringed by multiple Chinese manufacturers.

He finally threw in the towel and contracted with one of the larger infringing Chinese companies to make his own invention, converted his manufacturing company to a warehouse operation, and started importing his what was once manufactured in California product from China. He slowly started laying off excess employees. . . until he got down to about a dozen. He then dissolved his old company. Formed a new one, transferred the employees and got rid of the designation of being over 50 employees with its paperwork burden.

He was p*ssed as all hell about not being able to continue employing Americans in manufacturing his product here. . . but it was IMPOSSIBLE to do.

[DannyTN]

Apple didn’t exist. Slavers used to say the Africans were better off.

Chinese are not better off, because we are enabling their totalitarian system, even as we are weakening America.

[kearnyirish2]

If they moved the jobs a day before the stupid comment it is absurd; I don’t care if they were the last ones. Nobody is going to study professions with no future. Gates whined about young Americans not studying computers, while he was working furiously to screw those who did.

[Springman]

Bump for later.

[itsahoot]

Chinese are not better off, because we are enabling their totalitarian system, even as we are weakening America.

You eat every day right? Big of you to be willing to starve willing workers because you feel they are exploited. Kill them off for their own good.

[Swordmaker]

BS, Back it up with references.

You just did. The prices I provided and the models being sold are exact price quotes from Apple for models being sold collected from Apple RIGHT NOW on their website.

The iPhone 5C has been discontinued for over a year.

You just blew yourself out of the water, Central_VA, because your data is completely out of date. Now, you provide your source, which you took only parts, completely out of context.

I told you according to the tear down companies, the total costs of building an iPhone were around $240. Here is one published on CNBC on September 30, 2015, much more up-to-date than your estimation which calculated the iPhone 6s Plus at $236:

Apple rakes in $513 on every iPhone 6s Plus sale

CNBC lowballed assembly labor costs at just $4.50 per iPhone, ignoring all other costs associated with assembly, adding that a component cost of $231.50 to get their $236.

To that $236, I would then add a list of a lot of other costs they did not include which must be included, but must be included. I'm an Economist. I know what to include. These guys are tech repair guys and they don't even think of these things, but CNBC should have.

CNBC's article is pretty bad, claiming a 217.4% markup, because they totally ignore all other cost factors, and I do believe they do it deliberately, being a left-wing rabble rousing mainstream media idiot organization. I am not alone in this evaluation of CNBC's negativity toward Apple: "Six Reasons why Apple Closed 2015 with a Whimper." Reasons #2 and #3 are two of the six, with #3 enumerating CNBC as the poster child for #2.

Your source was compiled about two years ago by an economist at UBS, and even then didn't bother to look at Apple's own Financial statements filed with the SEC. Apple reports that their operating margin is NOT 50%, it's 39%. Since the iPhone is 60% or so of their revenues, you can pretty much assume that the gross margin for the iPhone is pretty damn close to that, not 50%. This year, Apple reported that the gross margin for the Apple Watch was around 49%. But that product was not present during the time UBS was making their calculations.

UBS also says "Apple's investment in non-leading edge production equipment," however, UBS is wrong about that, in that Apple is always re-tooling their assembly lines to modernize with leading edge equipment. UBS is really lost on their analysis. Apple has about $220 Billion invested in plant and equipment they provide to contractors. No one else can afford to do such investment, only Apple can do that, and does. UBS's economist missed that. He/she also missed a big one: Research and Development amortization for iPhones. Apple spends about $12 Billion annually on R&D and that is also allocated across all product lines as a cost.

Manufacturing costs are NOT solely labor, It is all the components that go into constructing the product of which Labor is just a compound component from an accounting and economic viewpoint.

Your simplistic UBS chart is erroneous in featuring labor as somehow important and calling it "Manufacturing" because it most likely is not a complete total, especially since the "Major Components" will also involve labor to make the raw materials into components. Perhaps, the term should have been more properly labelled "Final assembly."

I have been CEO as well as being educated as an Economist and also in Finance. Manufacturing is never looked at as merely the multiple steps of LABOR that goes into making a product. . . and anyone one who just considers that is misusing the technical terminology. It's looked at as "Manufacturing Costs." Notice that "costs" is plural, Central_VA.

The reason for that is because manufacturing is a process including materials, energy, labor, machine wear and tear, overhead, supervision, shipping of materials, etc. Labor is only one input of "Manufacturing costs" and a minor one at that. The cost of manufacturing the iPhone is the sum total of all those. YOU claimed the cost of manufacturing an iPhone was only the labor because you don't understand business or micro-economics at all.

As I said, Central_Va, don't get into a factual pissing match with an Economist, because you will be handed your head. You are not armed to be able to fight.

[Swordmaker]

Chinese are not better off, because we are enabling their totalitarian system, even as we are weakening America.

China is no longer classical Marxist communist. It is a single party system politically, but economically, it has embraced what can be almost termed laissez faire Capitalism.

Certain areas of the economy are still socialist, such as healthcare, power generation, trains, shipping (which are an arm of the military) but beyond those, almost anything goes. Independent banks in competition with the government banks are OK. Private property, OK. Stock market, OK. Etc. Free speech? In business, yes. Politically, no way. Controlled internet? You bet. Extreme surveillance of communications? Absolutely. Freewheeling programing of software? OK, anything goes. It's a very strange mix. Rising middle class. Very much so. Building upper class of rich entrepreneurs? Absolutely. Rising poor. yes. But also a large population of poor peasant class in the country-side still doing subsistence farming? Yes.

Political parties? Only one. Communist. But the policies of the politburo would not be recognizable to Karl Marx. I just don't think that Communism is a correct description for China's economic system anymore. I am not certain what to really call it anymore. Perhaps pragmatic oligarchic totalitarianism that keeps the political leaders and their selected successors in power would be the best description.