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Apple just does not want to be liked.........


RadoStefanov

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I agree with you completely,Marc. I was talking with my wife the other day and we thought of possibly higher taxes on the companies that have a large portion of their work done outside of the US to act as an incentive for large companies to have more workers in the US. Perhaps Apple would change their minds then........I can only hope.

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I'm always quick to point out that Apple is not alone here. Hundreds -- if not thousands -- of American firms have shifted tons of work to 3rd world countries. So Apple cannot be singled out here.

Still, I think there's a balance they could maintain, and maybe do 10% of their actual manufacturing and assembly here. They already employee about 50,000 Americans, and they pay a lot of American income tax, but I like to think maybe they could help out "The 99%" a little bit more than they are right now.

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Yesterday Apple reported massive profits... and today The New York Times reports conditions at Apple's (and Dell, Hewlett-Packard, I.B.M., Lenovo, Motorola, Nokia, Sony, Toshiba and others') Chinese manufacturing facilities are even worse than previously reported. And, of course, US unemployment remains unacceptably high. "Some former Apple executives say there is an unresolved tension within the company: executives want to improve conditions within factories, but that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products. Tuesday, Apple reported one of the most lucrative quarters of any corporation in history, with $13.06 billion in profits on $46.3 billion in sales." See the NYT article here http://goo.gl/VQ3n8

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It took a while before the general public got the message about conditions at the factories that made product for Nike and The Gap... and then it took a bit longer for Nike and The Gap to respond... but they did. I think the same thing will happen here. Today's NYT article will stimulate a lot of discussion in that direction. Apple, and the others, cannot continue to ignore it.

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We only seem to hear about problems in the China factories. While Foxconn has 13 factories in China that employ as many as 450,000 people, Foxconn also has factories in India, Slovakia, the Czech Republic, Mexico, and Brasil. Perhaps this isn't a Foxconn problem, as much as a Chinese labor regulations problem?

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Apple CEO Tim Cook has already responded to the story about bad working conditions:

http://9to5mac.com/2012/01/26/tim-cook-responds-to-claims-of-factory-worker-mistreatment-we-care-about-every-worker-in-our-supply-chain/

Apple also has a new section on their website where they promise to report on what they're doing to improve conditions for factory employees:

http://www.apple.com/supplierresponsibility/

It's been pointed out before, but thousands and thousands of multinational companies (including Apple) use parts, manufacturing, or assembly done by workers in 3rd-world countries. And Apple is one of the better ones.

While in some respects, this is a public relations disaster, I'm impressed that Cook has stayed on top of this and reacted so quickly.

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Interesting Paul Krugman piece in today's NYTimes. It's about Apple and GM, but relates to our industry as well...

http://www.nytimes.com/2012/01/27/opinion/krugman-jobs-jobs-and-cars.html

The film industry might have started in LA because of weather (and distance from New York patent holders), but when it began getting big, and more specialty companies and craftspeople located there... and soon it was the most efficient place to make movies. Despite state tax rebates and runaway shooting, it's still where the business and most post happens.

The explosion in high-tech consumer goods needed a similar support. Silicon Valley and Route 128 had lots of developers and designers, but China saw an opportunity to build a specialized manufacturing infrastructure, with all the necessary suppliers nearby.

It's ironic that it took a communist, totalitarian regime to dictate the conditions necessary for such a capitalist success...

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I wish John and Marc luck, but am having a hard time with the math.

Right now, iPhone is holding their own against the competition. If the price went up, more people would buy other brands of smart phones instead...

...which means iPhone's manufacturing would have to slow down, losing some economies of scale. That would happen no matter where they were built. So either the price would have to go up again, or the quality would have to go down to compensate, further cutting into sales...

and the cycle would repeat.

--

So let's say Apple raises the cost of production but keeps the cost the same, eating the difference. Sales aren't affected, so quantities stay up and economies of scale aren't lost. (Other than the economies lost when they raised the cost of production.) It's a win-win, right? What are we asking Apple to eat? $10 per phone?

Except the margins are paper-thin. I would be amazed if Apple's manufacturing profit was any more than 4%. That's leaving the factory, before wholesalers and retailers and cell companies add their costs, make their markup and take their cut. A phone that sells for $400 probably gives Apple less than $250. If my guess of 4% is right, their profit is $10.

Let's say you're an Apple middle manager and you propose spending only $5 more to make each phone. "Hey boss! Let's cut our profit by 50%!"

Or say you convince management to actually make the change... care to stick around for the stockholder lawsuit?

---

Things are different with the equipment we use in our jobs, because the quantities aren't as big. There are a lot fewer Devas than iPhones, so the margin on each unit has to be a lot bigger to pay for development and keep Zaxcom in business. But when you move from specialty- to consumer- goods, the numbers start behaving very differently. This is true even for products with very little manufacturing cost per unit, like FCP software... which may suggest why Apple made so many changes in Final Cut X, going after the much bigger consumer/prosumer market instead of the Hollywood pros who were cutting features in FCP 9.

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Except the margins are paper-thin. I would be amazed if Apple's manufacturing profit was any more than 4%. [Jay Rose]

Apple is a publicly traded company so information about their profit margin is available. It's not broken down by product (or, at least, I don't know how to access that data) but one can learn about mark-ups in general.

From Yahoo Finance: (data for 2011)

Profit Margin (ttm): 25.8%

Operating Margin (ttm): 33.87%

Return on Assets (ttm): 24.01%

Return on Equity (ttm): 45.58%

CNN Money discussed the iphone profit margins. The article is available here:

http://tech.fortune....ofit-an-iphone/

Some excerpts:

"Case in point: The largely unnoticed 13-page report he [bernstein Research's Toni Sacconaghi] issued last week on the iPhone's gross profit margins, which he estimates at nearly 60%. At that level they not only dwarf its competitors' (see chart at right), but they could reshape Apple's business model as the iPhone's share of the company's overall revenue stream grows from 30% in fiscal 2009 to an estimated 45% to 50% in fiscal 2011.

And:

"Sacconaghi estimates iPad's gross margin to be in the 30% to 32% range, not the 50% estimated by iSuppli's virtual tear down. (See here.)"

There are many different ways to compile data and they can lead to different conclusions. But all these numbers make it pretty clear that Apple makes a lot of money, a lot of profit, from the iphone. And, good for them. But it also means there is some room for adjustment without wrecking the company.

David

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Described by gaming site Kotaku as a potentially "deadly game of chicken," over 300 workers at the Foxconn factory in China threatened suicide. On Jan. 2, a group of workers appeared on the roof of the main production facility in Wuhan and threatened to jump.

Foxconn produces devices for Microsoft (including the Xbox360), Apple (the iPhone and iPad), Sony (PlayStation3) and Nintendo (the Wii), as well as the Amazon Kindle.

According to Want China Times, the problem was related to a deal struck with the Foxconn plant's leadership.

"(A)bout 300 employees at a plant belonging to Taiwan-based Foxconn... asked their boss for a raise. They were told either quit their positions with compensation or keep their jobs and receive no additional payment. Most employees took the first option, but the company terminated the agreement, and none of them were given the money they were promised."

Wuhan's mayor intervened to talk with the group and by 9 p.m. the next day, the group came down from the roof. The incident reportedly interrupted production of the Xbox 360.

Foxconn has been plagued by suicides, committed by employees working in terrible conditions.

UPDATED: New York Times reports a settlement. Kind of.

On January 12, the NYT wrote that Foxconn had "resolved" the pay dispute.

"In a statement released Thursday, Foxconn said most of the protesting workers had agreed to return to work after negotiations were held with the company and local government officials. But details of the agreement were not released. One of the workers said they had been promised additional compensation."

I'm not sure that being promised something by someone who already promised you something they didn't deliver is a resolution, exactly.

"One worker who participated in the Wuhan protest said by telephone that workers shifted to Wuhan had been promised about $450 a month in salary, including overtime pay, but that they had been given about a third less than that and that working conditions in Wuhan were much more difficult."

Foxconn photo by Liu Mao Yi

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So let's say Apple raises the cost of production but keeps the cost the same, eating the difference. Sales aren't affected, so quantities stay up and economies of scale aren't lost. (Other than the economies lost when they raised the cost of production.) It's a win-win, right? What are we asking Apple to eat? $10 per phone? Except the margins are paper-thin. I would be amazed if Apple's manufacturing profit was any more than 4%.

Uh... there are reports on the net that Apple makes a 75% profit per iPhone:

http://www.cultofmac.com/122497/apple-iphone-4s-best-feature-nearly-75-percent-profit-margin/

Trust me, they could eat $10 per phone, no problem. Bear in mind that they have $400 billion cash in the bank at the moment. This is more money than all of Greece, as well as several other countries.

I'm not asking Apple to give stuff away for free: I'm saying, cut down on the profits a little bit, maybe make 50% profit on each phone instead of 75%, and employ more Americans to build these and other products.

Wolf and others need to remember a few important facts:

1) Apple uses almost 200 different companies to make their products (not just Foxconn)

2) Foxconn and other Chinese suppliers make products for thousands of companies. Every PC on the market is made (in whole or in part) in China, mostly by sweatbox factory workers. So are bluejeans, sneakers, lightbulbs, and everything else you can imagine.

3) this is a worldwide problem, not just an Apple problem. Apple is just the most visible company doing this. The NY Times piece makes this very clear.

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Echoing Mr Bollard.

A corporation is in some ways an artificial organism, which responds to stimuli in its environment if predictable (or at least unsurprising) ways.

These stimuli include standardized accounting practices, shareholder requirements, and tax codes.

The goal of this artificial organism is to continually expand. Fixed profits are considered an inadequate success by the stock rating industry in the US.

This is especially aggravating when a company is NOT issuing new shares, and yet they operate with a continuing response to the price of existing shares on the SECONDARY markets (Stock exchanges).

The price of a stock share that has already been issued has NO effect on the actual health of a company.

This price DOES have an effect on what financial terms that company may borrow additional capital, or how much money they may raise with a fresh issue of a security.

Don't start saying corporations are people too!

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