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Friday, December 7, 2012

Why Apple Got a \'Made In U.S.A.\' Bug

Apple's decision to make some of its computers in the United States may be a positive for American jobs. It is certainly a marker of where much of the global computer industry has gone.

Today, rising energy prices and a global market for computers are changing the way companies make their machines. Hewlett-Packard, which turns out over 50 million computers a year through its own plants and subcontractors, makes many of its larger desktop personal computers in such higher-cost areas as Indianapolis and Tokyo to save on fuel costs and to serve business buyers rapidly.

“It's important that they get an order in five days, and there is a pride for the local consumer to see a sticker that says ‘Made in Tokyo,'” says Tony Prophet, senior vice president of operations for H.P.'s PCs and printers. Five years ago, he says, H.P. supplied most of E urope's desktops from China, but today it manufactures in the Czech Republic, Turkey and Russia instead.

H.P. sells those kinds of computers particularly to business customers. The Macs that Tim Cook, Apple's chief executive, talked about making in the United States are likewise large machines, though it is not clear if Apple is doing so to pursue more enterprise business.The iPhones and iPads will still apparently be made in China.

If Mr. Cook is bringing his computer assembly back to the United States, it will probably be for larger, lower-value goods that Apple wants to sell locally, said Rob Enderle, an analyst in San Jose, Calif., who has been following the industry for a quarter-century.

“A big-value product, like an iPhone or an iPad, would be a bigger deal,” he said. “Cook is looking to give Apple some good news. He doesn't want people thinking about Apple as a declining company that Steve Jobs used to run.”

Computer manufacturers hav e shipped work overseas for decades. At first it was considered prestigious. In 1998, President Bill Clinton visited a Gateway Computer factory outside Dublin to cheer the role of American manufacturers in the rise of a “Celtic Tiger” in technology.

That plant was shut in 2001, when Gateway elected to save costs by manufacturing in China. Dell, which made its mark by developing lean manufacturing techniques in Texas, closed its showcase Austin factory in 2008 as part of a companywide move to manufacturing in China. A Dell factory in Winston-Salem, N.C., for which Dell received $280 million in incentives from the government, was shut in 2010 (Dell had to repay some of the incentives.)

More recent products, laptops and notebook computers, were in many cases originally assembled in China, and they are still largely made there. So are most smartphones and tablets. Every week, H.P. sends a group of cargo containers filled with notebooks to Europe.

The labor cost on a notebook, which is about 4 to 5 percent of the retail price, is only slightly higher than the cost of shipping by air. Soon even that is likely to change because of the twin forces of lower manufacturing costs from automation and higher transportation costs from rising global activity.

While the assembly of parts creates some jobs, the value in computers is primarily in semiconductors, like processors and graphics chips, and in screens. Here, the market is both global and concentrated in a few areas.

Intel, which makes most of the processors, has plants in Oregon, Arizona, New Mexico, Israel, Ireland and China. Many other chip companies design their own products and have them made in giant factories, largely in Taiwan and China. Computer screens are made in Taiwan and South Korea, for the most part.

The special glass used for the touch screens of Apple's iPhone and iPad, however, is an exception. It comes primarily from the United States.

As cheap as a Chinese assembly worker may be, an emerging trend in manufacturing, specialized robots, promises to be even cheaper. The most valuable part of the computer, a motherboard loaded with microprocessors and memory, is already largely made with robots. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” Mr. Enderle said. “That will replace most of the workers, though you will need a few people to manage the robots.”