The Wall Street Journal quoted US President Donald Trump as saying “ I spoke to Cook, he’s promised me three big plants – big, big, big”. This was during a 45 minute interview with President Trump today.
This will be a new direction for Apple as most of the manufacturing today is done outside the country for the company.
It is clear that the Apple leadership has been thinking about local manufacturing strategy for some time.
In May of 2017, Tim Cook said “We can be the ripple in the pond” when it comes to advanced manufacturing. Tim unveiled this during an interview on CNBC promising a billion dollar investment in a US Manufacturing fund.
The first of these investment outlays was $200 million to Corning with the idea of developing a better phone glass and facilitate wireless charging. This capital investment was targeted to be spend at Corning’s Harrodsburg plant in Kentucky.
During the interview with CNBC, Cook also urged the Trump administration to hand tax breaks to companies that repatriate cash from overseas. Apple currently has $239 billion overseas. This large sum will definitely come handy for the company’s local manufacturing plans.
Apple’s larger suppliers have been pursuing a similar strategy since the beginning of this year. It was reported that FOXCONN, one of the largest Apple suppliers plans on opening up manufacturing facilities in US and spend over $10 billion. Terry Gou, FOXCONN’s CEO had met with President Donald trump in April and had discussed some of the future investment decisions.
It will be interesting to see how the shareholders react to this news as the company prepares to report its quarterly earnings on Aug 1st. So far, the company has enjoyed increases in ASP (Average Selling Price) on the iPhone while maintaining the large profit margins on the device. It will be hard to maintain these product margins going forward if Apple chooses to pursue manufacturing in US.
It is also possible that these new manufacturing plants may focus on advanced new products that require specialization or enable value by being close to the main customer market. This may allow the company to preserve value for its shareholders and still create US jobs in the future.
The twitter crowd was already on top of this with Jason Snell adding his opinion about today’s news.
For now, all we know is that its going to be Big, Big and Big! while we wait to see how the Tax reforms plays out in the future.
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