Apple profits, production – and the president

Questions about its manufacturing plans may overshadow results




Apple, despite its culture of innovation and revolution, is a careful company. Open up a new iPhone or iPad, and the packaging proudly declares “Designed in California.” So as not to leave any consumer confusion, etched in the hardware is the acknowledgement “Assembled in China.”

The Cupertino, Calif., firm has grown into the world’s most valuable publicly traded company by inventing new products and allowing others to actually build them.

Last week, though, in an interview with The Wall Street Journal, President Donald Trump said Apple CEO Tim Cook had pledged to build three manufacturing plants in the United States. A day later, the president announced Taiwanese manufacturer and major Apple supplier Foxconn would open a $10 billion factory in Wisconsin.

On Tuesday in the week ahead, Apple investors should expect questions about the company’s manufacturing plans to overshadow its financial performance when it releases its latest quarterly results.

Apple’s gross profit margins are around 40 percent — an enviable number. That has been driven by the company managing production costs through offshore contract manufacturers such as Foxconn and forging strong brand affinity with consumers. Building its products overseas helps keep costs down while its status symbol among shoppers gives it pricing power.

The president would score economic and political points if the company invests more directly in U.S. manufacturing, but could there be a cost to shareholders? Assembling iPhones and iPads in America will cost more than in China. Are consumers willing to pay the difference? Perhaps Apple’s “plants,” as foretold by the president, aren’t factories at all but some other investment.

While shareholders will be focused on sales of the aging iPhone 7 models and listening for any hints about the next-generation model, the company will have to address the intrigue created by its contract manufacturer and the president over its own American expansion plans.