Monday, March 19, 2012

Umm, Yeah, About that "Made in China" iPad

Apple's iProducts continue to not only break sales records but also provide invaluable lessons on modern global supply chains and the pointlessness of bilateral trade deficit figures.  The WSJ's report on iFixit's teardown of the iPad3 the "new iPad" explains again why the back of the device should read "made on Earth":
The new iPad sports a speedier Apple-designed processor, a sharper screen and next-generation wireless Internet connections, known as 4G LTE.

Broadcom, a communications-chip specialist in Irvine, Calif., made the chips used for Bluetooth and wireless Internet access, iFixit said after posting a so-called teardown report from Australia. Chips from San Diego-based Qualcomm are used by the iPad to connect to cellular networks, including 4G services using a technology called LTE.

Elpida, a Japanese company that has filed bankruptcy proceedings, supplied dynamic-random access memory chips for the iPad, the site added. IFixit also identified other memory chips from Toshiba Corp., also based in Japan.

Other chips identified by iFixit came from companies that include Texas Instruments Inc., Fairchild Semiconductor International and TriQuint Semiconductor Inc....

One of the highest-profile suppliers to the iPad is Samsung, whose display had earlier been reported to be the only one that met Apple’s specifications for the high-resolution screen and was being used in the device. Competing displays from Sharp Corp. and LG Display Co. recently met Apple’s requirements, according to people familiar with the matter, and Sharp’s components are expected to begin shipping soon.

Samsung, which is currently locked in patent litigation with Apple, also the manufacturer of Apple’s third-generation processor, the A5X, according to iFixit. (The Korean company has built prior Apple-designed chips used in mobile devices). The firm said it found markings on the chip that said it was manufactured by Samsung in the first week of this year.
The iFixit breakdown makes clear that most of the iPad's components aren't made in China, but instead in Japan, Taiwan and, yes, even the United States.  Those parts are then shipped to China for final assembly.  Thus, the actual value accruing to Chinese iPad "manufacturers" is pretty low, while the suppliers all over the world reap much larger shares of the assembly costs.

The WSJ goes on to explain that the total component costs for the new iPad are $309, while the retail price for the 16GB model is $629.  Assuming that a new iPad imported into the United States registers as a $309 import from China (even though, again, little of that $309 cost is actually created in China), that means that over half of the iPad's final sales price is profit - profit going straight to Apple's employees and shareholders.


Given these facts, it's clear that anyone - like this guy - lamenting that a "made in China" iPad or the US-China trade deficit is somehow indicative of the "death of US manufacturing" (or the need to "get tough" on Chinese trade practices) simply has no idea how the global economy actually works or how modern global supply chains have rendered many trade statistics completely worthless.

As I've repeatedly stated, many campaigning politicians continue to cite the US-China trade deficit as some sort of "proof" that China is eating our trade lunch, even though the iPod/iPhone/iPad examples and global supply chains more broadly have been widely reported for years now.  So, once again, either these politicians are utterly clueless or they're being completely disingenuous.

I guess it could be both.


The Ghost said...

Apple has never paid a dividend so shareholders don't see any of those profits in cash ... share value maybe ...

Scott Lincicome said...

Definitely share value, Ghost. (although they announced a dividend today)