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Apple Largess Would Come With Caveats

Apple Largess Would Come With Caveats

(Bloomberg Gadfly) -- Wanted: Foreign manufacturers to receive $10 billion in free factories and equipment.

  • Must be willing to set up in the U.S.A.
  • Candidates should commit to creating jobs, making high-quality products, and paying U.S. wages.
  • Benefits may include free machinery, tax breaks, subsidized land, and photo opportunities with presidents and CEOs.
  • Contract is for five years, or until the political winds shift.

The list of companies likely to be invited to submit resumes and take advantage of Apple Inc.'s massive five-year capex plan is long. At the head of the line might be Foxconn Technology Group. Then throw in Pegatron Corp., Quanta Computer Inc., O-Film Tech Co., Lens Technology Co., Catcher Technology Co., Japan Display Inc., Sharp Corp., BOE Technology Group Co.

Apple Largess Would Come With Caveats

While Apple said it's committing $30 billion over five years, $10 billion will go toward data centers and another $5 billion for domestic manufacturers (companies like Corning Inc. and Flex Ltd. are likely beneficiaries there), then there's a new campus and retail expansion. So I estimate that the amount available to foreign companies is probably closer to $10 billion.

And that capex money is likely to benefit suppliers, because Apple doesn't run its own factories. It outsources to a long supply chain, from chip designers such as Qualcomm Inc. and Broadcom Ltd., to components manufacturers -- such as Taiwan Semiconductor Manufacturing Corp. and Sony Corp. -- and finally to the assemblers (Foxconn being the most famous).

Apple spends an average $10 billion annually  on fixed assets, much of which goes toward buying equipment that sits in the factories of its suppliers. This is a practice that dates back to the early 2000s, when it started requiring unique or specialized manufacturing techniques, and those suppliers lacked the funds to buy all the machinery on their own.

Apple Largess Would Come With Caveats

In addition to Apple's own largess, incentives such as tax breaks, cheap land and other subsidies would make for a very enticing package with which to lure foreign companies and create jobs.

But it's a huge risk for any supplier to set up shop in America. Even if half of the costs were borne by Apple and government agencies, the lucky recipients would still be left running a U.S. facility, paying U.S. wages, subject to U.S. labor laws (and unions), and reliant on a single U.S. client.

Thanks to the death of American electronics brands, there are few domestic companies that could take up the slack should demand from Apple fall. It's possible that arch-rival Samsung Electronics Electronics Co. might set up shop there, but I doubt it. And given how unwelcome Chinese names are, it's hard to imagine any of them deciding to spend much money in the U.S.

That would leave such suppliers making a lot of products and components that would then be sent back to China (or perhaps to Mexico) for final assembly -- a bit like shipping sand to the beach.

No doubt there are many companies willing to have a chat with Apple about setting up facilities in the U.S., but don't expect them to be overly excited about it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

  1. Apple capex has been rising in recent years, but averages billion over the past five years, likely boosted by its new Cupertino campus.

  2. Half is purely a guess. We need to see details of Apple and government offers.

To contact the author of this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.

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