Domestic Smartphone Manufacturing Cost Difference Minimal?

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It’s such a common occurrence to see your electronic devices produced in Asia that it gives pause if you were to see one with a sticker that says “Made In U.S.A.” But that is precisely what Google Inc (NASDAQ:AAPL)’s Motorola division is doing with its flagship phone the Moto X by opening a factory in Texas. But at what cost? Certainly the cost of assembling a Moto X in the States adds at least $50 to the cost of assembling an iPhone 5 or Galaxy S in China. No, not according to an analysis of the smartphone’s internal components by IHS iSuppli on Wednesday revealed that the Moto X costs between $3.50 and $4 more than the aforementioned leaders in smartphone sales.

Smartphone sale numbers

That number, however, needs to be taken with a grain of salt. The Moto X will not move off the shelves like an iPhone or a Galaxy S. It might be a feature rich phone but it won’t touch the sales numbers of the other two. In fact if you look at the amount of iPhones sold last year (last four quarters, 138 million iPhones. At a $4 cost difference, Apple Inc. (NASDAQ:AAPL) is saving themselves $550 million by having them produced in China.

As Apple Inc. (NASDAQ:AAPL) CEO Tim Cook, battles with decreasing profit margins don’t expect the phone to produced domestically anytime soon if ever. Granted, Apple Inc. (NASDAQ:AAPL) did shift the part of its production of Macintosh computers to Texas as well, but that was largely to shift the focus from workers at Foxconn Technology Co., Ltd. (TPE:2354) (OTCMKTS:FXCOF) who were committing suicide at a high rate.

Karel Williams on smartphone manufacturing

“This doesn’t mean it’s bringing back component production, and it doesn’t mean that there will be a substantial repatriation of manufacturing,” said Karel Williams, a professor at the University of Manchester Business School who specializes in global manufacturing. “The Mac is a low-volume product that is irrelevant to shares. That means this is a PR move.”

“Apple Inc. (NASDAQ:AAPL) needs huge Chinese assembly factories to make the next sexy product at moment’s notice. It needs Foxconn Technology Co., Ltd. (TPE:2354) (OTCMKTS:FXCOF),” said Williams. “No matter how well meaning Apple Inc. (NASDAQ:AAPL) is, there are practical limits on the manufacturing business model for what they can bring back to United States.”

And that is precisely why the iPhone will forever be manufactured in China.

Cost of smartphone manufacturing domestically

Beyond the costs of manufacturing domestically, Foxconn houses their workers in dormitories, something that hasn’t been done since the unfortunate decision to round up Japanese descendents and place them in internment camps in during World War II.

China also has far more skilled engineers than the United States does. Apple Inc. (NASDAQ:AAPL) has said it requires 30,000 industrial engineers to support its on-site factory workers — numbers that simply don’t exist in America.

“There has to be a fundamental change in the education system to bring back some of this [labor],” said Apple Inc. (NASDAQ:AAPL) CEO Tim Cook in an interview last year with AllThingsD.

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