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Analyst: Apple to start 'insourcing' in 2013

Posted: 10 Dec 2012 ?? ?Print Version ?Bookmark and Share

Keywords:PC industry? contract manufacturing? production? insourcing?

IHS has announced that Apple will shift some production of its computers to the U.S. Apple CEO Tim Cook said his company will shift manufacturing of one computer line from Asia to the U.S. next year although reports did not specify how much manufacturing will be conducted in the U.S.

"The percentage of production likely to be shifted by Apple from Asia to the United States in 2013 is likely to be negligible, both for the company and for PC industry at large," said Craig Stice, senior principal analyst for computer systems at IHS. "Apple's move appears to be a symbolic effort to help improve its public image, which has been battered in recent years by reports of labour issues at its contract manufacturing partners in Asia. However, given Apple's high profile in the market, the company's 'insourcing' initiative could compel other companies to follow suit and transfer production to the United States over the next few years."

Apple is apt to shift only a small percentage of its total production to the U.S. next year. At the same time, the company is a relatively small player in the global PC market. With the vast majority of PCs now being produced in Asia by contract manufacturers, Apple's move is unlikely to spur a major shift in production from Asia to the U.S.

In the global PC market, Apple is ranked No. 6, with a 5.8 per cent share of global shipments in Q3.

Apple makes extensive use of contact manufacturing services, with all of its production of notebook PCs outsourced to Quanta Computer , Foxconn Electronics and occasionally Pegatron, which are original design manufacturers (ODMs) and EMS providers based in Taiwan that have manufacturing operations in China.

In 2011, Quanta manufactured all 13.4 million of Apple's PowerBook, iBook, MacBook Pro, MacBook Air and Napa-platform MacBook computers that were shipped for the year.

The company also uses other Asia-based contract manufacturers, notably Foxconn, for production of the iPhone and iPad.

Given Apple's extensive overseas production, the total percentage of the company's cost of goods sold shifted from China to the U.S. in 2013 is prone to be very small. If Apple only moves production of one segment of its Macintosh product line, as reports indicate, the total shift in COGS could amount to less than one per cent in 2013. Still, the move has some precedent in other circles.

"While Apple's action appears largely to be a public-relations play, there are some real business justifications for technology companies shifting the production of certain types of products from Asia to the United States," said Jeffrey Wu, senior analyst for OEM research at IHS. "Among these are rising labour costs in China, faster time to market and reduced costs in configuration and shipping. It's not uncommon for original equipment manufacturers (OEM) to build bulky products, a category that could include desktop PCs, close to their end markets to offer timely configuration and save on logistics costs."

Interestingly, Apple is not the first OEM to announce it will be moving some PC production from Asia to the U.S. in 2013. Chinese computer-maker Lenovo Group in October said it would start making PCs in North Carolina next year.

"Lenovo's announcement appears to have flown under the radarwhile Apple's move has dominated the headlines," Stice noted. "Apple is a company that is always in the spotlight, and the company's image sets the standard in the PC world. If Apple is doing it, will others follow?"

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