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Friday, December 07, 2012
 Cook's Hints On U.S. PC Outsourcing Is A Symbolic, Marketing-driven Move
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Message Text: Apple CEO Tim Cook said his company will shift manufacturing of one computer line from Asia to the United States starting next year, in a symbolic effort to help improve Apple's public image.

Media reports did not specify how much Apple manufacturing will be conducted in the U.S., or exactly which product was involved, but the scale and magnitude of the move is not expected to be major.

"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."

Apple is apt to shift only a small percentage of its total production to the United States next year. At the same time, the company is a relatively small player in the global PC market. 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.

In the global PC market, Apple is ranked No. 6, with a 5.8 percent share of global shipments in the third quarter of this year, according to data released by IHS.

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

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 percent in 2013. Still, the move has some precedent in other circles.

"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," said Jeffrey Wu, senior analyst for OEM research at IHS. "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."

Just the same, Wu said Apple would be less inclined to shift production of other, smaller products to the United States.

"I cannot imagine that Apple will transfer the manufacturing of its highly standardized and much slimmer products - i.e., iPhones, iPads and iPods - back to the United States in the near future," Wu added.

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.

Chinese computer-maker Lenovo Group Ltd. in October also said it would start making PCs in North Carolina next year.

"Lenovo's announcement appears to have flown under the radar - while Apple's move has dominated the headlines," Stice noted. "Apple is a company that is always in the spotlight, and the company's image sets the standard in the PC world. If Apple is doing it, will others follow?"
 
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