How the U.S. Lost Out on iPhone Work

[Parihaka]

Some kids are not cut out for school. There should be early options for trades training with classes on some business skills.

I have a high school diploma but no one has ever asked for it. If I knew then what I know now I would have dropped school early and got myself a trade earlier. At my age now I'd have two certificates under my belt and years of experience or have 17 or 18 years of experience in one trade if I started young.

Same here. I spent 5 years learning Latin & French & Chemistry etc etc when what I wanted to do was tech drawing, art, woodwork, metalwork etc. Complete waste of my f**king time.

[JAD_333]

Same here. I spent 5 years learning Latin & French & Chemistry etc etc when what I wanted to do was tech drawing, art, woodwork, metalwork etc. Complete waste of my f**king time.

Surely, it made you more sophisticated.

[RollingWave]

Same here. I spent 5 years learning Latin & French & Chemistry etc etc when what I wanted to do was tech drawing, art, woodwork, metalwork etc. Complete waste of my f**king time.

I totally agree that is one of the major problems right now, but the other side of the coin is that such education take time, but kids at 15 (and even many at 18) are they really sure what they REALLY want to do for the rest of their life??

[Doktor]

Same here. I spent 5 years learning Latin & French & Chemistry etc etc when what I wanted to do was tech drawing, art, woodwork, metalwork etc. Complete waste of my f**king time.

You learned only Latin, French and Chemistry and no drawing, art...?

It's 50% waste of your time, same as to all of us ;)

[USSWisconsin]

There is a lot of inappropriate - class driven education (do what your father did - or what he wants you to do) - some people get trained to be managers, when they would do better as skilled craftsmen, and vice versa. The world needs a certain percentage of managers, craftsmen, and other professionals - it would be nice to see people rewarded for doing what best suites them - as long as they were contributing to society. nah - that would be utopia - and we can't have that...

[Parihaka]

Surely, it made you more sophisticated.

Well it is true I can insult people in several different languages....

[JAD_333]

For a former Republican staffer, you are probably also aware that there are other 'savvy' explanations for posing a question. Easy to ridicule if you pass unsavoury Judgement. IIRC, certain Nafta disapproval was a significant part of the Obama presidential campaign, and nobody saw it as anything other than politicking then...

To be sure, there are other explanations, if one wants to imagine them. But the apparent one is the one that counts. Example: Romney says he likes to fire people and says he's not worried about the very poor, and although that is not exactly what he meant, he appeared insensitive and out of touch. That's what I meant about Obama's question to Steve Jobs. It appeared ignorant, given that Obama is apparently the captain of our economy, which of course, is not true.

[omon]

are they really sure what they REALLY want to do for the rest of their life??

you mean you know better what they should do with their life??

wheather their desision is right or wrong, time will tell, but no one has more right to deside that but them.

[JAD_333]

JAD,

I do not believe that Apple should not keep the bulk of the profits under current market conditions...

I am not sure what you mean "under current market condition." But if you are a businessman, which I don't suppose you are, you would not believe that any company other than Apple should keep the profits from the sale of i-Phones. That, of course, excludes the profits earned by retailers.

The thing is, the Chinese or rather Foxconn simply assembles them for a piece rate. They are piece workers. They take no risk should the product not do well in the market. For that trade off, they are assured their money, e.g. $22 million in revenues for each 1 million in i-Phones they assemble.

It didn't happen, but if the i-Phone had sold only a few million and then fell out of consumer favor, as happens with many electronic products, Apple would have lost it's ass, considering the enormous cost of developing and marketing a product. On top of that, it has overhead costs and has to design and pay for each part that goes into the i-Phone.

I am a builder and no way I will share the profit I make from a house with an electrical or plumbing subcontractor who is guaranteed his money when he finishes up while I am not guaranteed anything. I take all the risks; I get all the profits.

[JAD_333]

The problem is that:

A. your assuming this is static, it's not, basic wages in China have grown by an average of something like 15% a year for the last decade even after factoring in inflation (but is still low because they were starting from one of the very poorest country in the world), the reason why the folks at Foxconn put up with that sort of shite (it's Spartan even by Chinese factory standards) is because they do pay more than other similar jobs.

B. Chinese wages are already higher than say.. Vietnam's or plenty of other countries and the reality on the ground is that most factory can't get enough folks to fill their operation, however while some factory are indeed migrating elsewhere (or further inland) because that China generally still have better infrastructure / relatively reliable government (at least to something like say.. Haiti or most of Africa) and perphaps more importantly they have the total manpower needed for such type or operations that many factory still choose to stay, and would likely still stay for quite awhile longer. Even Taiwan still have such type of factories (though it is mostly manned by SE Asian labors)

C. Since WW2, these type of jobs have essentially migrated from the West to Japan / Taiwan / Korea/ Hong Kong to China, condition and relative pay today for Chinese worker is no worse (actually it's probably better than) say... the USA... in the 1920s. not to meantion England in the later 19th century. It's the simple fact that China today is still on a much earlier stage of industrialization development than the west, just look at it's Urbanization statistics, which just cracked 50% lately, that's again, USA territory in the early 20th century. if you compare to the situation then to China now, similarities are extreme. It's a process that basically every country went through at some stage , just that from the western POV that stage is already out of living memory, where as for other folks in Asia it's completely within their living memory when hey.. we were just like that.

D. most of the folks working at Foxconn or similar that gets very low pay essentially only have education up to Junior highschool , and are almost always very young, my sister went to a similar factory in China (not Foxconn but they do similar stuff) and she said that none of the assembly line worker could possibly be even 20 years old. most of them don't do that sort of work for too long, and they move on to other stuff later on in life that is more rewarding as a whole. You can ask yourself if a guy in the US doesn't even graduate from H.S, what sort of job can he realistically expect? probably nothing (legal at least)

When my grandparents fled to Taiwan, they worked several years rolling cigaretts at a local factory (and they were already in their later 30s at that point), that obviously paid close to nothing, but by the time they died 40 years later they were millionares that owned one of the largest unlisted private paper factory in Taiwan with operations in SE Asia and China as well. such things happen. It's a story that's repeated widely in Taiwan, Souh Korea, Japan, Hong Kong... and indeed the USA, just in a further time back. There's not much reason to expect China to be the exception to the rule when almost every indicator suggest they're not.

The problem of China and USA are almost entirely seperated, China is just the latest in the line of East Asian counry that's marching the path of modern industrialization (albeit at the largest scale ), the USA (and indeed most of Europe as well) is trying to figure out what to do after they reach the end of that road. Even if China had remained a Norh Korean like country today most of the problem and US and Europe face would still be the same.

Good insights.

[citanon]

I am a builder and no way I will share the profit I make from a house with an electrical or plumbing subcontractor who is guaranteed his money when he finishes up while I am not guaranteed anything. I take all the risks; I get all the profits.

But if the market rates for the subcontractors are 2x where they are today, you'd still have to pay them the 2x rate, and either pass the costs to your customers, or take a hit in your profits.

I think what we are getting stuck on here is semantics. What I'm really looking for is a breakdown of the final price in terms of how much goes to whom:



The question is, is this accurate?

http://pcic.merage.uci.edu/papers/20...Pad_iPhone.pdf
Transnational Dominance at Reports from the Economic Front

Also:

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4S-Carries-BOM-of-$188,-IHS-iSuppli-Teardown-Analysis-Reveals.aspx

Notice the "manufacturing costs" is only $8 out of $188.

[Repatriated Canuck]

There is a lot of inappropriate - class driven education (do what your father did - or what he wants you to do) - some people get trained to be managers, when they would do better as skilled craftsmen, and vice versa. The world needs a certain percentage of managers, craftsmen, and other professionals - it would be nice to see people rewarded for doing what best suites them - as long as they were contributing to society. nah - that would be utopia - and we can't have that...

I agree and for me I've had people shocked and not believe that I scaffold when I'm in my suit (it's a very nice one). I especially notice the where did you go to uni questions and the slight condescension of blue collar workers at times when I'm being a chameleon in my awesome suit. It's fun to keep quiet and listen waiting for my turn for the education question. I love being able to inwardly giggle at my lack personal debt and that my loser job paid for this nice suit and I most likely clear more per paycheque lifting heavy things than they do. It helps that I'm not a complete idiot to blend in I suppose. Not that I wouldn't love to get more education. I just don't see any money to be made from a history major and I'd get too bored with anything else. I figure I'll go to school when I retire.

Anyway my point. North America really needs to stop frowning on the blue collar worker. There is nothing wrong with taking an education route that enables you to build and craft at a high level. I also think that there should be some business focus built into apprenticeships. It might help men and women who want to strike out for themselves with tools other than craftsmanship to avoid failure.

[bigross86]

The beautiful thing about going to school when you retire is that many courses (here at least) don't have mandatory attendance or a sign sheet. You can take an entire course just by showing up (without the tests at the end) without paying a dime.

[JAD_333]

But if the market rates for the subcontractors are 2x where they are today, you'd still have to pay them the 2x rate, and either pass the costs to your customers, or take a hit in your profits.

True, you'll take a hit in your profit margin if you leave it unchanged, but in the real world you'll raise your profit margin to cover higher cost of production. That is, you'll raise your selling price, trying to maintain the same percentage margin. The pie chart you posted show Apple getting 58% margin. If Foxconn raised their piece price by $22 (double what it is now) Apple would tack $22 on to its selling price plus 58%.

That may sound like a lot, but margins in the 40-45% range are fairly typical, while extremely popular products in demand, may yield margins as high as 100%. 100-300% is common in fine gold jewelry manufacturing, but has nothing to do with demand.

Getting back to the Apple case, 58% seems reasonable to me. Remember that's a gross figure. Out of it comes taxes, operations, research and development, administration. Also Apple does most of its own marketing. What you need to make any sort of case, is Apple's net after-tax earnings.

Right now their earnings are soaring on sales of the i-Pad and i-Phone. How long will this last no one knows. Prices are likely to drop when sales slow to any extent. Apple can afford to earn a smaller margin to keep sales going. Suppliers and contractors would do well to hold their prices steady. If they raise prices, they might see their volumes drop off. It's a delicate balancing act.

I think what we are getting stuck on here is semantics. What I'm really looking for is a breakdown of the final price in terms of how much goes to whom:

I got the impression you believe the Chinese workers ought to get a bigger share of the sales price.

The question is, is this accurate?

Looks about right. Probably a template based on other products. Apple doesn't get into details.

Also:

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4S-Carries-BOM-of-$188,-IHS-iSuppli-Teardown-Analysis-Reveals.aspx

Notice the "manufacturing costs" is only $8 out of $188.

What is "manufacturing"? Your chart shows more than 20% for parts alone. Then there is assembly. That would come to more than $40 of the $188, and I suspect it would be more when support functions are rolled in, such as shipping and distribution. Again, it depends on how you define manufacturing.

[citanon]

True, you'll take a hit in your profit margin if you leave it unchanged, but in the real world you'll raise your profit margin to cover higher cost of production. That is, you'll raise your selling price, trying to maintain the same percentage margin. The pie chart you posted show Apple getting 58% margin. If Foxconn raised their piece price by $22 (double what it is now) Apple would tack $22 on to its selling price plus 58%.

That may sound like a lot, but margins in the 40-45% range are fairly typical, while extremely popular products in demand, may yield margins as high as 100%. 100-300% is common in fine gold jewelry manufacturing, but has nothing to do with demand.

Getting back to the Apple case, 58% seems reasonable to me. Remember that's a gross figure. Out of it comes taxes, operations, research and development, administration. Also Apple does most of its own marketing. What you need to make any sort of case, is Apple's net after-tax earnings.

Right now their earnings are soaring on sales of the i-Pad and i-Phone. How long will this last no one knows. Prices are likely to drop when sales slow to any extent. Apple can afford to earn a smaller margin to keep sales going. Suppliers and contractors would do well to hold their prices steady. If they raise prices, they might see their volumes drop off. It's a delicate balancing act.

All agreed.

I got the impression you believe the Chinese workers ought to get a bigger share of the sales price.

I'm trying to figure out whether current labor market conditions in China are sustainable, and for how long, and by corollary what their economy will look like moving forward, and where they will be trying to go. "Ought" has nothing really to do with it. However, I think "need" is most important. What do they need, and are they getting it now? Have they already moved past the point where "need" is going unfulfilled, and if so what kind of moves should we expect from the Chinese government, industry and society in the next few years?

Looks about right. Probably a template based on other products. Apple doesn't get into details.

What is "manufacturing"? Your chart shows more than 20% for parts alone. Then there is assembly. That would come to more than $40 of the $188, and I suspect it would be more when support functions are rolled in, such as shipping and distribution. Again, it depends on how you define manufacturing.

I'm trying to figure out if that 1.8% figure in the first chart is accurate. Not many other sources to compare against.