Cost to make Google phone in U.S: $4 more than outsourcing

Cost to make Google phone in U.S: $4 more than outsourcing
Photo provided by CNN/Google
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POSTED: Thursday, August 29, 2013 - 2:00am

UPDATED: Thursday, August 29, 2013 - 2:04am

How much more do you think it would it cost to make a smartphone in the United States rather than in China? $50 per phone? $100?

Try $4.

Google made a big splash when it announced the Moto X, the new flagship phone of the company's Motorola division, will be manufactured in Texas. An analysis of the smartphone's internal components by IHS iSuppli on Wednesday revealed that the Moto X costs between $3.50 and $4 more per phone to make than the Apple iPhone 5 or the Samsung Galaxy S4 -- both of which are assembled in China.

"In spite of its 'Made in the USA' label, overall costs are still competitive with similar smartphones," said Andrew Rassweiler, IHS' senior director of cost benchmarking services.

Google did not immediately respond to a request for comment.

It's a remarkable feat at a time when making gadgets and gizmos in the Far East has become the norm.

Manufacturing high-profile devices in America has some precedent: Last year, Apple CEO Tim Cook made the surprising announcement that some of the company's Macintosh production would be shifted to the U.S.

But don't expect a "Made in the USA" revolution. The Moto X is a nice phone, but no one is predicting that it will sell anything close to the volume of iPhones or Galaxy S phones. Similarly, the Macintosh is by far the smallest of Apple's "core four" products in terms of unit sales. Apple sold 17 million Macs in the past four quarters, compared to 138 million iPhones.

And if you assume that it would also cost Apple an extra $4 a phone to make the iPhone in the U.S., that works out to added costs of $550 million -- a non-starter for a company already struggling to stem the tide of shrinking profit margins. That estimate also could be too low because of possible costs involved to enhance domestic manufacturing facilities and train workers.

But at $4 a phone, cost clearly isn't the only issue. The real stumbling blocks are speed and education.

Unlike U.S. plants, Foxconn and other Chinese manufacturing operations house employees in dormitories and can send hundreds of thousands of workers to the assembly lines at a moment's notice. Workers are subjected to what most Americans would consider unbearably long hours and tough working conditions.

That system gives tech companies the efficiency needed to race products out the door. Plus, most of the component suppliers for tech companies are also in China or other Asian countries. That gives companies the flexibility to change a product design at the last minute and still ship on time.

China also has far more skilled engineers than the United States does. Apple has said it requires 30,000 industrial engineers to support its on-site factory workers -- numbers that simply don't exist in America.

"There has to be a fundamental change in the education system to bring back some of this [labor]," said Apple CEO Tim Cook in an interview last year with AllThingsD. 

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